Sarkozy presses for constitutional clamp on deficits

20th May 2010, Comments 0 comments

French President Nicolas Sarkozy said on Thursday that France's constitution should be altered to compel new governments to sign up to a timetable to balance their budgets.

And in order to demonstrate his own determination to control costs, he confirmed that he planned to freeze all public spending for three years.

"The restoration of public finances should not just be an undertaking of the government, but of the nation. It should be a long-term engagement and for that the governance of our public finances must change," Sarkozy said.

"That is why I want to start work on a constitutional amendment," he said, addressing a conference on deficit reduction at his offices in the Elysee Palace, according to a copy of his speech released by his office.

"This reform will make it an obligation of each government that is elected to publish a five-year trajectory for the deficit. Each government will at the same time have to announce the date at which the budget will be balanced."

Last year, Germany modified its constitution to compel its federal government to limit its public deficit to 0.35 percent of GDP, and it has called on fellow members of the eurozone bloc to adopt similar measures.

France currently runs a public deficit of eight percent of annual output, which is lower than that of some more troubled eurozone countries but which contributes to anxiety about the stability of the single currency bloc.

Caught between wanting to continue stimulus spending to boost recovery from last year's record recession, and to cut costs to relieve pressure on its mounting sovereign debt, France has struggled to control the deficit.

Sarkozy's government has forecast it will run to 8.2 percent of gross domestic product this year, 6.0 percent in 2011 and 4.6 percent in 2012.

If this trend continues, the French public deficit will not return to the eurozone Stability Pact's theoretical maximum limit of three percent until 2013, and only if it achieves growth of 2.5 percent from 2011.

Growth this year has so far been anaemic and even the government, always more optimistic than independent economists, is only forecasting 1.4 percent.

Sarkozy said he would save five billion euros (6.16 billion dollars) per year by closing tax loopholes, and reduce government running costs and subsidies by ten percent by the end of 2013.

"We will continue to only replace one public employee for every two that retire," he said, predicting that this will mean the saving of 34,000 public sector salaries per year on average.

"And from 2011 we will strictly reinforce our control on spending. We will reject general tax rises and we will proceed at the pace of the recovery to pursue reforms that will strengthen our growth."

Sarkozy also declared that the sum central government disburses to local authorities will be frozen at its current level for three years, and not rise with inflation, this representing another effective cut.

Deficits run by a country increase the stock of debt, formed of past deficits.

To make up any difference, or deficit, between annual tax revenues and spending, governments borrow on international financial markets by selling debt instruments called bonds to investment funds, banks and insurance firms.

In the European Union, the all-important public deficit covers the budgets of central government, local government and welfare accounts.

© 2010 AFP

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