rance's Socialist government, seeking to cut a mounting trade deficit, today announced a sweeping package of austerity measures that would include tax and utility price increases, a compulsory savings program, a limit on French spending during trips abroad and a cut in the social security program.
The 10-point "action program," which was approved at a meeting of President Francois Mitterrand's new 15-member Cabinet, follows a televised speech by the 66-year-old French leader Wednesday committing the government to balancing its foreign trade by the end of next year.
The package represents a further step from Mitterrand's ambitious hopes for economic growth when he came to office in May 1981 at the head of France's first left-wing administration in 24 years. Those plans for expanding the economy proved impossible to sustain at a time when the rest of the world was in recession, and they had to be shelved in June 1982 in favor of a freeze on wages and prices.
At first sight, the new austerity measures appeared to be tougher than previous attempts to reduce government deficits and more likely to have a direct impact on the purchasing power of ordinary French citizens. In the long term, this could create political problems for a government that came to power pledged to protect working-class living standards and that looks to the trade unions and Communist Party for support.
In France, unlike most of its principal Western European competitors, the consumer so far has been cushioned from the effects of the international economic crisis and the oil price increases of the 1970s. During the past two years, for example, consumption rose in France by 2.6 percent while it fell in West Germany by 4.6 percent.
This has contributed to increasing indebtedness, an inflation rate that is running at about 9 percent a year (compared to 4 percent in West Germany) and an external trade deficit of about $13 billion in 1983. Earlier this week the franc was devalued for the third time since the Socialists came to power, and the government is eager to avoid a politically harmful fourth devaluation.
With bellwether municipal elections out of the way early this month, Mitterrand now has turned to the austerity plan in an effort to reverse these economic trends.
The franc strengthened against other currencies after news of the austerity package, and dealers reported funds flowing back into the French currency--signs that the measures had impressed the markets, Reuter reported.
But France's employers' organization condemned the package as insufficient, charging the measures "impose heavy sacrifices on the French people without righting the economy," United Press International reported. Initial union reaction was equally unfavorable, with the biggest Socialist union condemning the package for "sacrificing" labor.
One of the key points in the program is a tax on gasoline that will be equivalent to the reduction in international oil prices. This means, in effect, that the oil cuts will create no benefit for ordinary French consumers.
In order to cut the deficits of state-owned utilities, prices for gas, electricity, telephones and railways will go up by 8 percent on April 1. There also will be new taxes on alcohol and cigarettes. Social security expenditure is to be cut by more than $500 million, and hospital charges will be increased.
A forced savings program has been introduced that effectively requires most income earners to make a one-time loan to the government in May of an amount equivalent to 10 percent of their annual tax payments. The government will repay the money with interest after three years, or sooner if trade comes back into balance. Low-income wage earners are to be exempted.
The program will also limit French tourists to spending no more than 2,000 francs ($270) abroad each year. There will be exceptions for businessmen to support French exports.
The government is planning to submit the austerity package to the National Assembly during a vote of confidence April 6, but approval seems assured since the Socialist Party has a majority. Before then, however, there will be consultations with the trade unions and employers' organizations.
Figures released this week underlined the urgency of the new economic measures.
They showed that France spent about $7 billion supporting the franc in hectic dealings on the foreign exchange markets during February and early March.
The French currency was devalued by eight percentage points in relation to the West German mark Monday after heated negotiations in Brussels with France's European Community partners.
The scale of the intervention in favor of the franc, which also was supported by other European central banks, suggested that the currency would have plummeted if France had carried out threats to pull out of the European Monetary System.
One effect of the currency crisis is that U.S. tourists will find their dollars going much farther in France this year--with the exchange rate hovering around 7.20 francs as opposed to 6.80 last week. But much of the benefit is likely to be eaten up quickly by inflation.