France’s banks including BNP Paribas SA (BNP) and Societe Generale SA (GLE) will have to split off some of their riskiest operations as President Francois Hollande pushes ahead with his campaign promises.
“Finance will have to be there to service the real economy,” Prime Minister Jean-Marc Ayrault said today in a speech to the nation’s 577 lawmakers. “That’s why we will separate banks that are useful to investment and jobs from their speculative activities.”
Ayrault’s speech laying out France’s political plan for Hollande’s five-year mandate comes a day before a revision of the 2012 budget law, part of the country’s effort to get to grips with its deficit as growth stalls. The measures on banks are part of the platform that helped Hollande win election in May and that Ayrault confirmed today.
The first Socialist government in 17 years to run Europe’s second-largest economy will enact new rules that follow on from Hollande’s campaign promises, including a 30 percent cut in nuclear output in the country’s energy mix, same-sex marriage, local voting rights for foreigners and a 75 percent income tax on annual earnings over 1 million euros ($1.26 million).
With the government forced to find as much as 43 billion euros in savings this year and next, according to the national auditor report yesterday, Hollande has little choice but to enforce as soon as this week a series of budget cuts and tax increases.
His repeated promises to cut the deficit to 4.5 percent of gross domestic product this year and 3 percent in 2013 will be strained as economic growth slows. The National Statistics Office, Insee, cut its economic growth forecast to 0.4 percent for this year and between 1 percent and 1.3 percent in 2013, instead of 1.7 percent previously.
While Ayrault set in the stone of his policy speech the campaign promise, he did not give any details on how and when the government would move ahead.
Ayrault indicated that the government will increase taxes on the oil industry, without giving further details. Hollande is planning to tax fuel inventories, a move that may cost French refiners and distributors 500 million euros, according to industry group Union Francaise des Industries Petrolieres, or UFIP, which represents companies including Total SA and Exxon Mobil Corp. Refiners will be the biggest payers of the proposed tax because they have the largest fuel stocks, it said.
The levy will be a “one-off” imposed this year, UFIP head Jean-Louis Schilansky said in an interview June 27.
Hollande’s call to split off banks’ “speculative” branches echoes the Vickers plan in the U.K., which recommended that lenders separate consumer and investment-banking operations and that each have a separate board with at least two-thirds of their members sitting on only one board. Under the report, banks will also need to have their own risk committees.
BNP Paribas, France’s biggest bank, fell 1.4 percent to 31.22 euros in Paris trading, while Societe Generale, the second largest, dropped 1.5 percent to 18.67 euros.
While Hollande pledged to spur growth and ban “austerity” from his vocabulary, the auditor’s report may help him justify the series of tax increases that his deficit commitments force him to impose. The auditor said France needs between 6 billion euros and 10 billion euros in savings this year and 33 billion euros in 2013 to meet deficit-reduction targets.
Tax measures will include an increased levy on large corporations with more than 500 workers, a rise in inheritance taxes and the end of the fiscal measures for the wealthy that Hollande said benefited from the previous government. Ayrault promised to crack down on tax evaders as the government prepares to cut tax breaks for high earners.
“This government’s aim is to call on those that have been so far exonerated from the collective effort,” Ayrault said, citing increased taxes on banks, oil industries, wealthy tax payers and big companies.
The state will hire 60,000 school teachers and workers over a five-year period, the prime minister said today. The plan will be balanced by the limitation of new hires as the government will seek to maintain and not increase its workforce, he said.
Seeking to split from his predecessor Nicolas Sarkozy’s politics, Hollande pledged to scrap the value-added tax increase that would have been applied in October and to lower the proportion of nuclear-produced electricity to 50 percent by 2025 from 75 percent.
Ayrault didn’t reiterate Hollande’s election promise to shut the Fessenheim atomic reactors in eastern France, nor did he give details about the reduction of nuclear output.
Hollande will also release surplus publicly-owned land for residential development on long term leases as the government seeks to kick-start the construction and housing industries to create jobs.
Ayrault will submit his policy plan to the National Assembly for a vote of confidence, a ballot he can’t lose as the Socialist Party holds the absolute majority in the lower chamber.
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