Budget

The French Cour des Comptes (National Audit Office) published this Monday a new report on public finances. Without surprise, the ambition to limit the budget deficit to 4.4% of GDP in 2012 is confirmed to be unrealistic. An extra six to ten billion euro would be necessary in order to meet this commitment, and this is without taking into account the new promises and expenses scheduled since François Hollande’s election. Meanwhile, the new financial Minister Pierre Moscovici, keeps claiming his profound hostility to austerity and budget cuts.

For the French government, it is more than ever urgent to convince everyone that the State deficit is moving in the right direction and the public debt is sustainable. In the context of an uncertain future for the French credit rating triple A note, the present debate on the budget of the State for the coming year and the austerity measures it includes became a really hot issue. The initial project of budget for 2012 has been already adopted by the Financial Commission at the French National Assembly and is now being discussed by the deputies.

While several EU member states are facing an unprecedented sovereign debt crisis and others are struggling to cut their spending to avoid the crash, the EU Budget and Financial Programming…

This is the cumulated budget deficit of the OECD countries in 2010. On average, it represents 7.5 GDP points.

Looking for budget savings

Some analysts are suspecting that the current fragile economic recovery will be damaged by the policy of government spending cuts that many countries undertook in order to reduce their public budget deficits. The debate is perfervid, in particular in the US where the government has opted for the keynesian policy of massive public spending. The effects of this policy, as was to be expected, have been so far calamitous and the American deficit is not about to be absorbed. Furthermore, tax reductions introduced by Bush in 2005 will expire next December and, most probably, will not be extended. An additional fiscal burden will therefore hit an already suffering economy.

The French minister of finance Eric Woerth is ready to consider the possibility for France to write down in the Constitution a rule for the equilibrium of public finances. He…