French finance chief hails easing off austerity

AP News
Posted: May 07, 2013 9:43 AM

BERLIN (AP) — French Finance Minister Pierre Moscovici on Tuesday hailed the European Union's decision to grant his country more time to tackle its deficit as a turning point in the region's approach to austerity, which is choking off growth through spending cuts and tax hikes.

Cutting budget deficits remains important but the 27-nation bloc must now move toward a more growth-friendly "doctrine of positive deficit reduction," Moscovici said, speaking at a Berlin university alongside his German counterpart, Wolfgang Schaeuble.

That means tightening the budget when the economy is stronger and easing off the cuts in times of weaker growth, such as now.

The EU Commission, the bloc's executive arm, hinted Friday that it will grant France two more years to get its deficit below the limit of 3 percent of annual output to account for the current economic downturn.

Otherwise, Paris would have had to resort to more drastic measures "either in the form of more taxes or in the form of yet bigger cuts which would have been absolutely harmful for the French economy," Moscovici said.

EU countries have focused on debt reduction as the main policy to restore market confidence in the region's public finances over the past three years. But the spending cuts and tax increases have been hurting the economy and proved less effective at reducing deficits than initially thought. As economies shrink, so do their tax revenues, potentially making it harder to close budget gaps.

Moscovici said France does not view the additional time the EU has granted it as an incentive to slow down the pace of its structural economic reforms, saying "it's not an invitation to laziness."

"France is a serious country, conducting credible policies," Moscovici added.

German Chancellor Angela Merkel and Finance Minister Schaeuble have so far championed a course of budget tightening and structural reforms to overcome the eurozone's debt crisis, insisting in many cases on austerity measures that deepened the recession in crisis-hit nations like Greece, Portugal or Spain.

"I know that the decision (by the European Commission) has raised questions in Germany," Moscovici acknowledged. But he stressed that it is in Germany's own interest that France, the bloc's second-largest economy, returns to growth.

"We need a strong France," he said, noting that only France and Germany together can push European integration forward. The two nations together count for almost half of the eurozone's population and its economic output.

"We are not everything in Europe, but without Germany and France nothing advances in Europe," Schaeuble added.

Schaeuble called the European Commission's decision on France "appropriate" and insisted that it was a misunderstanding to think Europe was divided, with some governments seeking austerity and others growth.

"We have always said we jointly want sustainable growth, for which solid public finances are a precondition," he said.

The bloc must make it a priority to fight unemployment, and youth unemployment in particular, or the EU stands the risk of "losing legitimacy and credibility," he said.

The eurozone overall is stuck in recession and unemployment is expected to hit an average of 12.2 percent this year, up from 11.4 percent in 2012.


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