Jospin promises tax cuts in strategy to restore higher growth rates

The French Prime Minister Mr Lionel Jospin went on national television last night to reassure the public that his government is reacting effectively to the economic slowdown.

He and the Finance Minister, Mr Laurent Fabius, will discuss a possible European strategy to restore higher growth rates with their German counterparts, Mr Jospin said. "And I do not think it can be achieved through deficit spending."

Mr Fabius has four times revised growth estimates for 2001 downward. Initially expected to be well over 3 per cent, French economists now predict around 2.1 per cent growth this year.

Mr Jospin said he was still hoping for between 2.3 and 2.5 per cent.

"We created 1.7 million jobs and the number of jobless has dropped by more than a million," Mr Jospin boasted.

But unemployment rose slightly in May and June, and the telecommunications sector - where Nortel, Lucent, Alcatel, Ericsson and Philips are firing French workers - is particularly affected.

Mr Jospin's response to the worsening situation is to reduce taxes, a policy he promised to continue. A year ago, the French government announced it would cut taxes by 120 billion French francs (€18 billion) over three years. By giving French citizens more money to spend, Mr Jospin said he is encouraging consumption and helping to maintain economic growth.

The "PPE" or "job bonus" is intended to give low wage earners an incentive to work rather than collect unemployment benefits. The annual autumn "school allocation" for children has been increased, and Mr Jospin said it would "send a negative signal" if his government raised petrol taxes, as the green party wishes.

To help small companies - who along with the civil service will be the last to adopt the 35-hour working week next January - Mr Jospin said the government will be flexible regarding overtime arrangements.

"The government has not remained inert," Mr Jospin insisted.

"Our economic policy is the right one... In this climate of worry, the government must be attentive and lucid but not euphoric. And we must refrain from rhetoric that makes people anxious."

Each time disappointing statistics are announced, he added, "the opposition seems to rejoice."

The switch to the euro will be "a great event", the French Prime Minister said. His government will punish businesses that try to exploit the change for profit, and Mr Jospin will deploy police and the army in an operation he called "vigi-euro" to ensure the transition goes smoothly.

The Belgian presidency of the EU is studying a proposal to tax international stock market speculation, Mr Jospin said. "I propose that France take an initiative on this question in international bodies," he added.

An opinion poll this week showed that 56 per cent of the French public fear the economy will worsen in coming months, while 64 per cent say it has already deteriorated.

"The American engine has slowed down," Mr Jospin explained. "Japan is in open economic crisis. Obviously, this has consequences for Europe and France." Yet during his four years in office, Mr Jospin noted, the French economy has performed better than those of Germany or Italy.