The Prime Minister François Fillon has just announced a series of new austerity measures to produce a further 12 billion euros in savings for the government in 2011 and 2012. This follows a downgrading in the forecast for economic growth for both years. The measures include a new reduction in the benefits afforded by a variety of tax breaks and a temporary 3% tax on those with massive incomes. But, argues Laurent Mauduit, the overall package is just another sign of the government's incoherent and crazy economic policy. And one which he says risks tipping France back into recession.
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On Wednesday evening Prime Minister unveiled the government's austerity plan, which is as crazy as it is unjust. Those with huge incomes are subject to a derisory extra contribution [a 3% tax on net incomes of more than 500,000 euros, that will be lifted if and when France's budget deficit is reduced to 3%] which has attracted a great deal of attention in the media. Meanwhile much more significant and socially painful measures have received no publicity at all.
From the beginning to the end of his five-year mandate, Nicolas Sarkozy has carried out a hybrid economic and social policy, veering between austerity and a Rocky Horror Show. He has constantly changed course, unpicking one day what he had put in place just before. He has presided over unproductive expenditure while carrying out socially dangerous cuts. With no long term coherence or strategy, and amid indescribable chaos, he has carried out a policy that is muddled and deeply unfair.
The new plan of austerity that the head of state had decided upon and which François Fillon had the difficult job of unveiling on the 24th of August is, in this sense, a model of its kind. Crazy and incoherent, full of skilful ruses or hypocrisies to fool public opinion, economically dangerous and worrying socially, it contains every fault in one package.
François Fillon admitted at his press conference that the government's growth forecasts have been lowered to just 1.75% for both 2011 [in place of 2%] and 2012 [from 2.25%].
Less growth inevitably means lower tax receipts, and thus less room for manoeuvre in economic and social policy. Faced with this situation the government had, on paper, two options open to it. One was to advocate a European strategy of co-operation, with the aim of stimulating growth and helping ensure a concerted recovery. The other was to inflict new austerity measures on an economy that is already totally weakened.
It is this second option that the Elysée has chosen. The reasoning is absurd. Growth is faltering and revenues are drying up? Too bad! In spite of everything let's increase the budget saving measures to reduce the public deficit from 7.1% [of gross domestic product or GDP] at the end of 2010 to 5.7% at the end of 2011, then 4.6% at the end of 2012 and 3% at the end of 2013, according to the financial plan sent to Brussels. It is ultra-liberal orthodoxy that demands it; the priority is to reduce deficits whatever the economic situation.
The threat of a new recession
To meet these objectives François Fillon announced a series of measures, from new taxes to new spending cuts, for a total saving that should reach 1 billion euros in 2011 and 11 billion in 2012. As a symbolic gesture, the prime minister even announced that the public deficit would be reduced further than forecast, reaching not 4.6% but 4.5% of GDP by the end of 2012. That's just a tenth of one percent extra, but it underlines the absurdity of the policy being followed. A difficult economic situation that makes it impossible to reach the objectives on budgetary deficits? No problem! Let's just increase a little more the rate of those reductions in the deficit...
While not unexpected from Nicolas Sarkozy, this budget package - which has just one logic, austerity - still appears farcical. For on numerous occasions since his election in 2007 the head of state has sought to distance himself from an economic policy whose demands are dictated solely by the financial markets and speculation. In a recent opinion piece [read here in French Contre la dictature financière, la révolte nécessaire], Mediapart Editor-in-Chief Edwy Plenel recalled the thundering utterances by Nicolas Sarkozy against the dictatorship exercised by the markets, and notably those given during a speech at Toulon on 25th September 2008 at the height of the financial crisis. "The idea that markets are all-powerful and should not be opposed by any regulation or political intervention, this idea of the all-powerful market was madness," said the president.
So for months Nicolas Sarkopzy tried to fool public opinion, seeking to show that he would not give way to the demands of the markets, that he would prove his determination.
And then the apparent revolutionary was obliged to let the mask drop; it is the financial markets that from now on decide French economic and social policy.
Farcical and contorted, Nicolas Sarkozy's new direction is economically dangerous because, having scarcely come out of a recession, France risks falling back into one. But it is also ludicrous or pitiful. Like an echo, we hear what the head of state said at Toulon: "The idea that the markets are always right is a mad idea."
It seems now to have been a premonition; here we are, having fallen back into the madness...
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English version: Michael Streeter