Economics

Debt Reduction: French Socialist Style

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The new French Prime Minister, Jean-Marc Ayrault, has given a speech to the French National Assembly to outline the socialist government's debt reduction plan. Ayrault did reduce the growth forecasts, and emphasized the huge debt France had accumulated between 2007 and 2011.  Despite France's debt and the ever-worsening euro crisis Ayrault refused to consider austerity saying:

I'm calling for a national effort. But I refuse austerity

The following proposals aim to put France back on the path to fiscal stability, something that will require savings of 10 billion euros this year, and 33 billion euros next year, all while trying to limit the impact of the euro crisis.

  1. Hire more public workers: Hollande and his government are committed to hiring 150,000 new public workers including teachers and police. During the election campaign Hollande pledged to hire more public sector workers, a promise he seems intent on keeping.
  2. Tax the rich: Those earning more than 1 million euros a year will enjoy an income tax of 75 percent, a rate that makes the Buffet Rule look reasonable. The move has already seen many French millionaires moving assets abroad. Quite who is going to pay the salaries of the 150,000 new public sector workers if there is a mass exodus of the wealthy from France remains unclear.
  3. Raise the minimum wage: Hollande has raised the minimum wage, however many French unions don't think that the raise was high enough. Evidently a post-tax take home salary of 1,118 euros a month (a 2 percent increase) is not enough for public sector workers who work 35 hour weeks, have access to free healthcare, and retire at sixty-two.

France's shift to the left is the most prominent impediment to any hint of hope in this euro fiasco. Progress within the European Union only typically occurs when Germany and France are in agreement. Germany is being slowly bullied into closer fiscal union and pooled debt. With the left in Europe calling the shots the policies adopted to solve the euro crisis will probably look increasingly French as it continues.