As he outlined the fiscal landscape in France, finance minister Michel Sapin's tone was markedly more subdued than that of President François Hollande in his past optimistic statements. Hollande is haunted by his failed promise to "reverse the curve of unemployment" by the end of last year, and Bastille Day speeches in 2013 and 2014 in which he announced that "the recovery is here".
“The recovery is not here,” Sapin said clearly at a breakfast with the Anglo-American Press Association at the finance ministry in Bercy.
There have been three distinct crises since 2008: the initial financial and banking crisis; the public debt crisis in the euro zone: and “today, in the third period, which is extremely delicate, weak growth, weak inflation and high unemployment, which risk lasting for a long time”, Sapin said.
The European Commission is to deliver its verdict on France's 2015 budget on Monday. Brussels wants Paris to cut more than the €50 billion promised by 2017. France has unilaterally postponed compliance with the 3 per cent budget deficit ceiling until 2017, arguing mitigating circumstances.
"One cannot reduce debt with very weak growth and weak inflation," Sapin argued, admitting France has carried out few structural reforms. "Over the last 10 years, Germany did structural reforms, while France said she was going to do them."
The economic newspaper Les Échos reported yesterday that EU members could impose a fine on France equivalent to 0.2 per cent of gross domestic product, or €4 billion, for failing to comply with budgetary rules. Sapin was dismissive about the possibility.
“The question is without interest and without substance,” he said, mocking European officials who make such threats for “taking themselves for meter maids, going around with ticket books”.
Reducing deficits and debt is “indispensable”, he said. “But we must do it at the right rhythm, adapted to the situation of weak growth. It is undeniable that strong budgetary consolidation in 2012 and 2013 is one of the reasons for weak growth today. In 2013, we reduced structural deficits by one point. Obviously, that weighs on activity. Perhaps it had to be done, but it adversely affected growth.”
The central debate within Europe today is how to "balance deficit reduction and master indebtedness without weighing on [economic] activity," Sapin said. It had to be done in the right order, he explained. Europe must first "adapt the budgetary software of the euro zone to the situation, then discuss it with each country".
‘Right tool’
Jean-Claude Juncker’s commission plan to invest €300 billion in EU infrastructure is “the right tool”, which will enable Europe to exit the crisis, Sapin said, warning that “the heaviness and slowness” of “European mechanisms” risks complicating this “urgent” task.
Asked about economy minister Emmanuel Macron’s proposal that Germany should invest €50 billion in Europe in exchange for €50 billion in French budget cuts, Sapin said Europe’s two leading economies are “very much on the offensive” and he spends the greatest part of his time consulting with his German counterpart.
There is “a false caricature” that Germany wants private investment while France favours public. “We are very close in our reasoning,” he said. “Germany has evolved on these questions . . . Germany always says it won’t budge, but then it does.”
Sapin said he could not see France’s unemployment crisis improving, for the simple reason there is insufficient economic growth. If France had Germany’s low birth rate and low proportion of women in the workplace, “you would have the same unemployment rate”, he claimed. Joblessness is 6.7 per cent in Germany; over 10 per cent in France.
The minister warned it would be to the detriment of both Britain and Europe if Britain left the EU. “If the UK forfeits its place in the EU, then Europe would be weakened and the UK would also be worse off. It has to stay in. But the English are English, and I don’t ask them to change. I hope they realise the French are French, and don’t ask us to change.”
Windfall savings
On October 29th, France “found” an extra €3.6 billion in savings to placate Brussels, by recalculating with lower interest rates, promising to crack down on tax evasion and because the EU refunded €1 billion to Paris. At the same time, Brussels asked London for an additional €2.1 billion. “It just so happens that what is sending Mr [David] Cameron into a fury is actually a gain for us,” Sapin said. “It enables us to get €1 billion.”
Asked how the government could restore confidence in the French economy, Sapin pointed to the “gigantic” €41 billion in tax credits and lower social charges for businesses, to be given over four years. The CICE tax credit and “pact of responsibility” were calculated to compensate €41 billion in lost profits through six years of economic crisis.
He denounced the “troublemakers” who spread rumours the cuts could be reversed. “It is clear that we will have the same president and the same majority [in the National Assembly] until 2017,” he said. Rather than deplore frequent “French-bashing” by British media, Sapin said: “We also do a little Brit-bashing here. What I really don’t like is French-bashing by the French themselves. They are often the hardest on France. I sometimes see more positive judgments on France coming from abroad.”
