Thousands take to the streets of Paris in move described by government minister as ‘fundamental error’
Thousands of demonstrators took to the streets of Paris on Sunday to protest against the spread of economic “austerity” in France and Europe.
Chanting “resistance, resistance”, the crowds had been rallied by calls from around 60 organisations, including the leftwing Front de Gauche and the French Communist party, which oppose the European budget treaty.
“Today is the day the French people launch a movement against the politics of austerity,” said Front de Gauche president Jean-Luc Mélenchon.
A few hours before the protest started Jérome Cahuzac, a junior budget minister, described the demonstration as a “fundamental error”.
“I think they are committing a fundamental error in thinking that the policies we are following are weakening France, when in fact these policies are strengthening it,” he told Europe 1.
The French prime minister, Jean-Marc Ayrault, defended the European budget treaty and accused the protesters of taking a risk with history.
“To take the risk of aggravating the crisis, which is not only an economic crisis but also a euro crisis … The ambiguity of saying ‘non’ is also something that could lead to the end of the euro.”
He added that he and the president, François Hollande, “would never be responsible … for the disappearance of the euro”.
“The support of the majority in these circumstances is essential. We can’t swerve away, the future of the euro as well as growth and prosperity are in doubt,” Ayrault added.
For Annick Coupé of the Solidaires union, the demonstration on Sunday was aimed at creating a “show of force for the weeks to come” in which the government will consider pension, social security and employment reforms.
“Just because we helped defeat Nicolas Sarkozy (the former right of centre president) doesn’t mean we’re now going to shut up,” she said.
François Hollande’s budget – the toughest in 30 years – is ameliorative but it is hardly a radical departure.
Rigour, austerity and recession are out. Combat, exceptional measures and solidarity are in. With those costume changes, François Hollande has just delivered the toughest budget in 30 years. But he has done what he said he would do. He hit the super-rich with a 75% tax. It will only effect a symbolic number of taxpayers, about 2,000 in all, but in a country which has turned its back on bling-bling presidents, Mr Hollande is sticking to his script. Two thirds of the €30bn the French public purse has to recoup will come from tax rises – a percentage that would have Ed Balls exiting stage right – and one third from a public spending freeze.
The larger question is whether French austerity will prove any less counterproductive than the Greek, Spanish or Portuguese ones have been. The assumptions on which this budget are based are balanced on a hairpin – 0.8% growth? In combative mood, prime minister Jean-Marc Ayrault said this target was both realistic and ambitious, but it appears to be more ambitious than realistic. It is a leap in the dark, but a government has to make a plan, and – in dark times like these – there is no well-lit way to jump. As Labour assembles in Manchester, Mr Balls ought to reflect that uncertainty about the future dogs social democrats when they come to office. In these circumstances of wild flux, the single most important thing to hang on to is flexibility to respond to events. Rushing to repeat the sort of restrictive spending commitments made ahead of the 1997 election at this stage in the game would be a mistake.
Already the French government has been forced to concede that France will not be out of the red by 2017. The remaining hope that the public deficit can be reduced from its current level of 4.5% to 3% of GDP in conditions where the economy is stagnating continues to strain credibility. Even in good times, such a cut would represent a considerable heave. To achieve this, Mr Hollande would have to pull off public-sector reforms that both of his conservative predecessors, Nicolas Sarkozy and Jacques Chirac, ducked.
There remain, too, fundamental concerns about the direction of travel. The central charge against European leaders is they are attempting to counter deflation with deflationary policies. That is not just a point made by the Paul Krugmans of this world. It is now being made by the IMF. By hurting the near-term growth outlook, tighter fiscal policy could be leading to wider rather than narrower spreads over German bonds. Especially so if it involved an outright decline in the overall size of the economy. Killing the economy while raising debt will not work. Seen from this perspective, Hollande’s budget is ameliorative but it is hardly a radical departure.
Borrowing at cheap rates of interest, France is petrified of another Moody’s downgrade. Any jacking up of the rate to Spanish levels would push these finely balanced budget projections over a cliff. Mr Ayrault has argued that if they abandoned the 3% target, France would become Italy and Spain overnight. The black hole in Spain’s banking sector was declared to be €59.3bn, which caused sighs of relief because it could have been worse . But the more essential your economy is to the euro, the better terms you can demand. A Spanish premier is always going to have a louder voice in Brussels than that of a Greek premier. If France ever needed a bailout, it could demand one on better terms.
Mr Hollande is to be applauded for sharing the burden on the people who can most afford to pay it. But he remains a hostage to fortune. With over 3 million unemployed, he has no leeway for failure. It is not his fault, but it is the legacy he has taken on. If small French companies who have been spared the pain in this budget don’t start hiring, and soon, France will have increased debt and declining means to pay it.
François Hollande’s tax on the rich is proving a hit with the electorate – not to mention David Cameron
It’s not called austerity, or even rigour. Instead, plans to raise €7.2bn on taxing the rich, be they big businesses or the richest households, all fall under the rubric of a “fair” effort, “just” budgetary discipline, “fairly redressing” the nation’s finances. Give François Hollande and his prime minister, Jean-Marc Ayrault, their due. They are doing exactly what they told the French they would do, and what they are doing is proving to be popular.
Measures such as a 75% tax on people who earn over €1m get approval ratings of 76% – including 49% of those who voted for the centre-right UMP. Similar high approval ratings greet the other measures he has announced, such as cutting his own salary, capping the salaries of heads of public enterprises and creating 60,000 jobs in education. Hollande’s centre-left government is riding a wave of public opinion, not merely the aftermath of elections that give socialists an absolute majority.
There are several reasons why Hollande must succeed. To start at home, Britain is moving in the opposite direction. When it was signalled in advance that the top tax rate would go up to 50p, bankers took their bonuses early. Now that George Osborne is taking it down to 45p from next year, the bonuses are being deferred, so that the period of time when a 50p rate has operated is kept as mercifully short as possible.
Not only that. David Cameron is positioning Britain as a home for French tax exiles, for whom he wants to roll out the red carpet. When Hollande first announced the 75% tax, the financial daily Les Echos illustrated a report on whether there would be an exodus of the rich with pictures of South Kensington and a Learjet on the runway. British public opinion on this issue differs little from the French. In an era in which getting rich has little to do with wealth or job creation, the rich are seen as the ultimate self-caterers. A Hollande success would reveal the true loyalties or failings of successive British prime ministers.
This week was about amending or reversing measures in a budget largely fixed by Nicolas Sarkozy. The deeper tax reforms will come next year. But so too will the hard stuff: spending cuts. Hollande has pledged both to increase the numbers of posts in education, and to freeze total public spending. With a €40bn hole to fill over the next two years, real cuts will have to come. From which ministries the government refuses to say. But this week was also about symbols. Another sign of changed times was the police raid on Sarkozy’s home and offices, as part of an investigation into allegations of illegal campaign funding from France’s richest woman, the L’Oréal heiress Liliane Bettencourt. The era of being intensely relaxed about the filthy rich is over – even if they pay their taxes.