France hits out over 'too high' euro as cuts revolt looms

28th April 2014, Comments 0 comments

French Prime Minister Manuel Valls moved Monday to head off a threatened revolt within his own party by demanding a loosening of eurozone monetary policy to offset the impact of planned austerity measures.

Valls, who is under pressure from fellow Socialists over plans to cut public spending by 50 billion euros ($69 billion) over the next three years, outlined a number of concessions which will reduce the impact of the cuts.

And in a move likely to play equally well with the left of his party, he took a swipe at the European Central Bank over the "too high" level of the euro, which he said was blocking economic recovery.

Backed by President Francois Hollande, Valls has proposed the cuts package to ensure France brings its budget deficit into line with EU rules while freeing up funds for reductions in income and payroll taxes designed to boost the sagging economy and generate jobs.

But aspects of the plan, particularly freezes on welfare benefits and public sector wages, have angered many within the ruling Socialist Party and some lawmakers are threatening to challenge Valls's authority by refusing to support the package in a non-binding vote in parliament on Tuesday.

A decision by 40 Socialists to abstain would be sufficient to put the government in the embarrassing position of having to rely on its centre-right opponents to get the centrepiece of its economic strategy for the next three years endorsed by parliament.

In a letter to Socialist MPs, Valls described Tuesday's vote as "a moment of truth" for France and insisted: "We have to stop living beyond our means."

But he also detailed concessions to the rebels, including a pledge that the welfare freeze would not be applied to pensioners living on less than 1,200 euros a month.

Valls also agreed to resume inflation-linked pay rises for the lowest-paid public sector workers and said he would proceed with a revaluation of the minimum level of state income support for the long-term unemployed from this year, rather than delaying the start until 2015 as he had initially proposed.

It was unclear how much these amendments would cost but Valls indicated that he was maintaining the overall target of 50 billion euros in cuts between 2015 and 2017, when Hollande's five-year term as president ends.

- Euro 'too high' -

Valls acknowledged the cuts could have a dampening impact in the short term, which he argued could be offset "by a more active monetary policy and a more realistic exchange rate policy at the European level."

"The level of the euro is too high," he said.

After it is presented to parliament on Tuesday, the government's economic programme will be sent to Brussels for approval by the European Commission, which placed France under surveillance earlier this year over its failure to meet an agreed timetable for bringing its deficit down to three percent of GDP in line with eurozone rules.

France now says it will meet that target next year but the economic assumptions on which the government based that prediction were described as "optimistic" last week by its own spending watchdog.

If the Commission takes a similar line, it could ask Paris to outline further measures to reduce the risk of missing the deficit target again.

The government is counting on the economy expanding by one percent this year and an acceleration of growth to 1.7 percent next year and at least 2.25 percent in both 2016 and 2017, by which time it anticipates its measures to bolster growth will have taken effect and generated some 200,000 new jobs.

Hollande has admitted that his hopes of even being a candidate for re-election in 2017 hinge on the strategy working.

Valls too has much riding on the success or failure of an economic plan the government hopes will help French companies address a growing competitiveness deficit and make the country as a whole more attractive for international investors.

The most popular figure in the government, the former interior minister was promoted to his current role after the Socialists suffered stinging losses in local elections last month which were largely attributed to the impact of record unemployment and falling real incomes.


© 2014 AFP

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