Sarkozy's first budget unveiled in 'bankrupt' France

26th September 2007, Comments 0 comments

26 September 2007, PARIS (AFP) - President Nicolas Sarkozy's government on Wednesday unveils its first budget since taking office, with state spending under scrutiny after the prime minister warned that France was bankrupt.

26 September 2007

PARIS (AFP) - President Nicolas Sarkozy's government on Wednesday unveils its first budget since taking office, with state spending under scrutiny after the prime minister warned that France was bankrupt.

Prime Minister Francois Fillon caused a stir last week when he said the nation was "in a situation of bankruptcy" after decades of accumulated budget deficits and called for a change in mindset.

The budget to be presented at a cabinet meeting will show a deficit of 41.5 billion euros (58.5 billion dollars) -- about at the same level as last year's hole.

The national debt meanwhile will reach 1.150 trillion euros representing 64.2 percent of France's gross domestic product (GDP), up from 63.7 percent.

Despite the dire state of public finances, Sarkozy dismissed suggestion that the nation was headed toward a belt-tightening austerity plan and said economic growth was key to filling state coffers again.

"I have committed myself to getting public finances under control in France and I will do it," Sarkozy said in New York on Tuesday where he attended a session of the UN General Assembly.

"There will be no austerity plan," he added. "France's economic problem is very simple: we have discouraged hard work and we must encourage it (...) to gain growth."

The French government continues to bank on a growth figure of 2.25 percent for 2007 but projections from the European Commission and the Organisation for Economic Cooperation and Development show it will climax at 1.8 or 1.9 percent.

In addition, the strength of the euro is weighing on France's export accounts, further dampening prospects for robust growth.

Sarkozy last week unveiled plans to overhaul pensions for some public employees and to streamline the civil service, the boldest moves yet in his reform agenda since taking office four months ago.

Some 22,900 public servants who are retiring this year will not be replaced while the state is planning to sell off 600 million euros worth of real estate to generate revenue.

Opposition Socialists say the nation's finances suffered a haemorrhage after parliament voted through a package of tax cuts promised by Sarkozy during his election campaign that are estimated to cost between 9 and 15 billion euros a year.

Socialist Party leader Francois Hollande said the government would not opt for tough spending cuts in this budget and risk popular discontent ahead of municipal elections in March.

"All of the French people will have to shoulder the burden to finance fiscal gifts for a minority," Hollande told French radio.

The government is also under pressure from its European partners to rein in public spending and come in line with targets as the eurozone's second largest economy.

Fillon's tough talk on the state of public finances won support from Jean-Claude Trichet, head of the European Central Bank, who said he was right to sound the alarm.

"In 2007, according to statistics from the European Commission, France will be the country spending the most in public expenditure in relation to gross domestic product, not only within the eurozone but among the 27 members of the European Union," Trichet said last week.

AFP

Subject: French news

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