April 23 (Bloomberg) -- French Finance Minister Michel Sapin told lawmakers that boosting foreign sales is more urgent than reviving demand at home, underlining President Francois Hollande’s resolve to make France’s economy more competitive.
“We are suffering much more from a lack of competitiveness than from lack of domestic demand,” Sapin told the French National Assembly’s finance commission in Paris today. “We know it’s an onerous strategy, it requires courage, but the situation requires it.”
The remarks were directed at lawmakers from Hollande’s own Socialist ranks who are pushing to slow the pace of deficit cutting in favor of bolstering economic growth. They suggest the government is slashing spending in response to pressure from France’s European partners to reduce the deficit and improve competitiveness.
Sapin spoke after Hollande’s cabinet approved a plan to cut spending by 50 billion euros ($69 billion) by 2017, with the savings helping both to reduce payroll taxes and trim the budget shortfall. The French deficit will be 3.8 percent of gross domestic product this year before narrowing to the European Union’s target of 3 percent next year, according to the plan. The deficit will be 1.3 percent in 2017.
Prime Minister Manuel Valls was urged by a group of Socialist lawmakers yesterday to moderate the cuts to protect pensioners and civil servants.
“We’ll have real trouble to unite the Socialists behind this plan in its current state,” lawmaker Karin Berger said. Among the measures the group is proposing is to delay a tax cut for big businesses by one year, Berger said.
Hollande, already burdened with record low popularity ratings and historic unemployment levels, is trying to balance pressure from lawmakers to bolster growth with demands from the European Commission, the EU’s executive body, to trim the budget shortfall. His case was helped today with an assessment by France’s public finance board that the government’s estimate of 1 percent economic growth this year is “realistic.”
Valls and Sapin envisage a freeze in social benefits to help save 11 billion euros, with reductions in spending on health care yielding another 10 billion euros. Cuts in local government spending are estimated to save 11 billion euros, while state spending on administration is to drop by 18 billion euros. Wages of state employees will be frozen to 2017.
Sapin said that he’s willing to discuss the details of spending cuts, though not the principle.
“All proposals to cut spending differently can be discussed,” he said yesterday in an interview. At the same time, “there is no question of reducing our competitiveness push nor the spending cuts necessary for deficit reduction,” he said.