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Sarkozy’s Austerity Package for France

At the G20 summit in Cannes, Nicolas Sarkozy and Angela Merkel successfully bullied George Papandreou into backing down on a referendum after the Greek prime minister had promised to consult his people on a new bailout. The Franco-German pair ordered Silvio Berlusconi to accept surveillance of Italy’s austerity package by the IMF.

Despite presiding over a disastrous summit, Sarkozy saw it fit to mock Paul Mason, Newsnight’s economics editor, for asking a question that was not to his liking. The French president wondered whether the British insular upbringing meant that the BBC journalist could not understand the “subtleties of European construction”. Sarkozy may not have the last laugh, though. François Fillon, the French prime minister, has just announced a package of austerity measures which may well trigger a wave of discontent and popular unrest at home.

Following an “exceptional” cabinet meeting, Fillon made a spectacular, if not muscular declaration about the economic situation in France. Eager to cajole financial markets, the prime minister promised blood, sweat and tears for the French. Under Sarkozy’s presidency, France has caved in to “Anglo Saxon”-style capitalism.

Depressingly, the philosophy of the French plan is a carbon copy of the failed Greek, Portuguese and Spanish plans: the legal minimum retirement age will be further raised in 2017 and public deficits will be brought down to 0% by 2016. According to Les Echos, an economics daily, these measures aim to “send a strong signal to the credit rating agencies”. To put it more bluntly, this austerity package aims to make the poor pay for the banking system mess and goes to great lengths to protect the rich.

Fillon is committed to collecting €8bn by essentially raising VAT on a number of vital services and goods. This indirect taxation will as usual hit salaried workers and the poorest hardest. The government will also make further cuts on state spending, notably on health (€500m). These austerity measures will do nothing to revitalise a moribund French economy and like in other parts of Europe, it will only further aggravate economic recession.

Fillon pointed out that fiscal revenues are down due to weak economic growth (1% in 2012 as opposed to the forecast 1.75% in the summer of 2011). As economic growth is on the wane and compromised France’s commitment to tackling public deficits (by 3% of GDP in 2013), instant and drastic measures ought to be taken to redress the balance. This is all fine, but why is it that European governments do not seem so concerned about public deficits when they are created by bank-related activities?

When it comes to socialising the banks’ losses and privatising their profits, the Fillon government – like any other European government – turns a blind eye to public deficits. Dexia, a Franco-Belgian bank, was recently bailed out by public money: €10bn were found within days by the two governments (that is €2bn more than the current austerity package). Ironically, the decision to rescue Dexia came days after Fillon had suggested that the Belgian state was on the verge of bankruptcy.

Fillon’s speech will have a familiar ring to citizens across Europe. It is argued that the French live “beyond their means”. It is therefore time to “make sacrifices” for the good of the country, otherwise “your children” will be “heavily indebted”.

This dramatised account of the situation aims to fulfil the same objective: to instil fear and to make innocent people feel guilty for the mismanagement of public money by the government itself.

Let’s face it: if France has deep deficits, it is not because it is “living beyond its means” but rather because of the numerous tax cuts that successive governments have made over the past 20 years. Reduction in income tax has fundamentally benefited the richest (since 2007, for instance, the “fiscal shield” or the scrapping of the wealth tax).

A report published in 2010 by two senior civil servants shows that public debt would be 20% of GDP lower if the government had not made these tax cuts. In other words, despite the 2008 bank bailouts and the subsequent recession, France would only be slightly above the Maastricht criteria (that is, public debts should not be more than 60% of GNP).

The French understand what is at stake: under Sarkozy, progressive taxation such as income tax (the richer one becomes, the more tax one pays) is being replaced by regressive taxation such as VAT (the poorer one is, the more tax one pays). Dubbed the “president of the rich”, Sarkozy is using this austerity package to dramatically revise fiscal redistribution, for the benefit of the rich and to the detriment of the poor. This will economically and politically backfire.

PHILIPPE MARLIÈRE is professor of French and European politics at University College, London (UK). He can be reached atp.marliere@ucl.ac.uk.

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Philippe Marlière is a Professor of French and European Politics at University College London (UK). Twitter: @PhMarliere

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