France's Socialist government has had to abandon targets for cutting inflation and halving its trade deficit of 93 billion francs ($12.7 billion) because of the rise in the value of the dollar, French finance ministry officials said today.
The targets were adopted less than a month ago as part of a stringent austerity program which involved sucking about 65 billion francs--equivalent to about two percent of France's gross national product--out of the economy. Officials said that it would now be impossible to cut the trade deficit, as hoped, to 45 billion francs this year or to cut the inflation rate from more than 10 percent to less than eight percent this year.
The strength of the dollar has triggered sharp criticism by French Finance Minister Jacques Delors, who earlier this week accused Washington of irresponsibility toward the needs of Western Europe. He also warned that the dollar's rise could lead to more belt-tightening in France, although he did not specify what new measures were under consideration.
Addressing the national assembly on Wednesday, Delors said that Western European heads of government must make their voices heard at the Western economic summit in Williamsburg, Va. next month. He accused the Reagan administration of doing nothing to halt the rise in the dollar despite the fact that "all Europe is worried."
French government economists based most of their economic projections for this year on the assumption of a dollar-franc parity of seven francs. But the dollar burst through that barrier last month, when the franc was devalued against other Western European currencies, and today was trading at 7.37 francs in Paris.
The high price of the dollar means that France will not make the savings it anticipated as a direct result of the cut in world oil prices. When the austerity package was originally drawn up, government officials were talking of a savings of 20 billion francs ($2.7 billion) in oil imports. It will now be lucky to save half this amount.
In the first two months of this year, France incurred a seasonally adjusted trade deficiit of 17.2 billion francs ($2.3 billion).
Last month's devaluation in the franc--the third since the Socialists came to power in May 1981--automatically increased the inflationary pressures in the economy by making imports more expensive. The subsequent austerity package added a further twist to inflation with its increases in prices of basic services such as transport and electricity.
In order to achieve the 8 percent target for inflation this year, prices for the rest of the year would have to rise less than 0.6 percent per month. Delors has already said that he expects the inflation index for April to rise by over one percent as a result of utility price increases.
Answering questions in the National Assembly on Wednesday, the finance minister said that America's partners had rallied round to help when the dollar's weakness in 1978 disturbed the world economy. With the phenomenon now reversed, he said that Washington should do the same in return.
French officials have privately accused the Reagan administration of being obsessed by the "magic of the marketplace."
Delors said that the United States was apparently ignoring the recommendations of a group set up following last year's Western economic summit at Versailles to study the effectiveness of central bank interventions to smooth out excessive currency fluctuations. He said that the study, which is due to be presented to a meeting of finance ministers in Washington next month, had recommended "a policy of reasonable intervention rather than a hands-off approach."