French Socialists Harden Deficit Pledge as Crisis Escalates
July 18, 2011, 6:34 AM EDTBy Mark Deen and Helene Fouquet
(Updates with bond spread in fifth paragraph, Sarkozy and tax increases in 13th and 14th.)
July 18 (Bloomberg) -- French Socialist Party leaders are hardening their commitment to cut the nation’s budget deficit as Europe’s sovereign-debt crisis creeps into the campaign for next year’s presidential elections.
“We have to balance the public accounts without delay” and reduce the deficit to 3 percent of gross domestic product by 2013, Francois Hollande, the leading contender to become the Socialist candidate for president, said in an interview with yesterday’s Le Monde newspaper. “Debt is the enemy of the left and of France.”
Martine Aubry, who’s also seeking her party’s nomination, echoed that view. “It’s a question of sovereignty,” she said, also vowing to meet the 3 percent goal in remarks yesterday on Europe 1 radio from Avignon, France. “Nothing would be worse than becoming president in 2012 and being attacked by financial markets.”
The remarks suggest a shift from April, when the Socialist Party laid out its campaign platform for the 2012 election and avoided a firm commitment on the deficit. Since then, concern about the ability of euro-area nations to repay their debts has grown, with borrowing costs surging last week for Italy, the region’s third-largest economy.
Containing the turbulence and keeping it from moving on to AAA-rated France is a key priority for European leaders set to meet in Brussels on July 21 to discuss the crisis. The premium France pays over Germany to borrow for 10 years surged to 69 basis points today from 38 points at the beginning of the month.
Debt Rising
French public debt stood at 84.5 percent of gross domestic product in the first quarter and will rise to 85.4 percent at the end of the year before peaking at 86.9 percent in 2012, government estimates show.
President Nicolas Sarkozy, with elections looming in April and May, has promised the European Union that France will trim its budget shortfall to 5.7 percent of GDP this year and 4.6 percent next before it falls to 3 percent in 2013.
Both Moody’s Investors Services and Standard & Poor’s have said that France’s top-tier credit rating is safe, provided the country carries out economic changes.
“If French authorities do not follow through with their reform of the pension system, make additional changes to the social-security system and consolidate the current budgetary position in the face of rising spending pressure on health care and pensions, Standard & Poor’s will unlikely maintain its AAA rating,” S&P said in a June 10 report.
Retirement Age
Both Hollande and Aubry have pledged to reverse Sarkozy’s increase in the retirement age and both said they’ll continue to oppose his effort to enshrine deficit-limiting rules in the constitution. They will be able to block the change if they manage to gain control of France’s Senate in September.
“To reduce our deficit and put France back on the path to fiscal health, there’s no need to change the constitution, there’s a need to change the president,” Hollande said.
Valerie Pecresse, Sarkozy’s budget minister, said Hollande and Aubry are playing a “double game” in expressing concern about indebtedness while also opposing measures to curb it.
“They have repeatedly opposed all measures to improve the public finances,” Pecresse said in an e-mailed statement, listing the pension-system overhaul and the constitutional change as examples. This language “could gravely damage France’s credibility.”
Pecresse also underscored the government’s commitment to the 2012 and 2013 budget targets, saying Sarkozy is ready to drop a promise not to raise taxes to meet them if necessary.
“We’ll keep this promise, and we’ll keep it whatever the economic circumstances, whatever the growth and inflation rates,” she said today on LCI television. “If necessary, we’re ready to find additional revenue.”
Some 34 percent of Socialist supporters want Hollande as their presidential candidate, compared with 32 percent for Aubry and 16 percent for Segolene Royal, according to a CSA poll published on July 11.
--Editors: Jeffrey Donovan, Jennifer M. Freedman
To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.net; Helene Fouquet in Paris at hfouquet1@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
