04 January 2013

Pierre Moscovici: A year of reckoning for France and Europe

Europe is our number one priority: stabilising the eurozone and resolving its current crisis are essential to stability and economic recovery in France, writes French finance minister Moscovici in this Social Europe article.

Hollande’s government insists that we will be successful only if three conditions are met. First, Europe should adopt a balanced approach to fiscal consolidation – a necessary process, but self-defeating when carried out too quickly. We must then break the perverse feedback loop between banking risk and sovereign risk that is at the heart of the euro crisis. This requires implementing a fully-fledged banking union – with a pan-European supervisor and a strong regime for banking resolution and deposit insurance – as soon as possible. Finally, in the medium to long term, we must complete the eurozone integration process and move forward on solidarity and risk-sharing – for example, by establishing a eurozone-specific budget.

Fiscal consolidation is the second pillar of France’s economic strategy. France has not adopted a balanced budget in the last 30 years, and its public debt reached an unsustainable €1.7 trillion ($2.2 trillion) in 2011. Our duty is to rise to the occasion and reverse the tide.

France is fully committed to a fiscal-consolidation effort that returns it to a balanced budget by 2017. This is not just a political commitment; we have enshrined France’s fiscal path in a law adopted in November.

The coming year will be a milestone on this path: France is targeting a 3 per cent-of-GDP budget deficit in 2013, down from 5.2 per cent in 2011 and 4.5 per cent in 2012, and a lower debt/GDP ratio from 2014 onward. This is an ambitious commitment, and one that we intend to meet without resorting to an old-fashioned “tax and spend” fiscal policy: over the next five years, spending cuts will be larger than tax increases, reaching €60 billion over five years.

Finally, we have committed ourselves to measures aimed at addressing France’s weakened competitiveness, via a “National Pact for Growth, Competitiveness, and Employment", which includes a €20 billion cut in labour costs for employers, to be phased in over three years. A new corporate tax credit will cut payroll taxes by 6 per cent for all wages below 2.5 times the minimum wage – a step that will benefit more than 80 per cent of all salaried workers.

We are committed to reforming the French economy. But we are committed to doing so while remaining true to our political convictions, and without jeopardising what makes France both strong and special: a highly redistributive social model. Europe is and will be part of the solution, if we can agree that more solidarity is the next step in our shared journey.

Full article

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