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French PM ploughs on with austerity but at what price?

Manuel VallsTranslated by Tom Gill  from the French original by Guillaume Duval

Despite the political thunder of the European elections of 25 May, France’s President and Prime Minister Manuel Valls chose the moment to stay the course of their “stability program” presented a month earlier to the National Assembly and approved by it after a fraught debate. This document, submitted to the European authorities, describes the economic policies to be implemented by the French government over the next three years, that is to say until the end of François Hollande five year term. In return for a significant €41 billion reduction in business taxes, decided under the so-called ‘responsibility pact’, the government aims to cut €50 billion from public spending by 2017 to maintain France’s commitments in terms of deficit reduction. This is a social, political and economic gamble with very uncertain outcomes.

Since the crisis, companies’ profits have shrunk. The government hopes that the fresh oxygen it brings will allow them to regain export market share and encourage them to hire and invest again. But our neighbours are also pursuing the same kind of policy. And the competitive advantage thus given to French companies can be quickly undone by the social race to the bottom in which the euro zone is still engaged. However, the significant programmed decline in public expenditure will weigh negatively on domestic demand. In such a context, it is not clear that companies will actually use their room for manoeuvre to further invest and hire in France.

Public expenditure level is already rather high in France, although the increase in spending has been very limited for many years. This is however not a problem in itself: the Scandinavian countries, so regularly and positively touted, displayed similar levels of expenditure (with even more public jobs). What is more problematic, however, is that in many areas, such as education or housing, for example, much of the expenditure is not achieving the desire goals; one can do things differently and much better.

But can we actually do better (or at the very least no worse ) while spending significantly less, as is envisaged by the government? In some areas, such as health or local authorities some leeway certainly exists, but overall , the risk is of significantly degrading the quality of “public goods” essential to economic activity while exacerbating inequalities.

Guillaume Duval is a French economist. This article first appeared in French at Alternatives Economiques. This translation appeared first at Revolting Europe.

Creative Commons License  Image Credit: From an original on Flikr by Denis Denis adapted by Left Futures

One Comment

  1. David Ellis says:

    Austerity merely contracts the real economy and redistributes money from poor to rich via the bankrupt banks.

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