France expects austerity as new PM's gives policy

FRENCH Prime Minister Jean-Marc Ayrault faces a baptism by fire on Tuesday when he outlines his new government's agenda, squeezed between promises to voters, to EU authorities and by an audit warning.

In Europe, the eurozone crisis still burns and at home his finance minister has just warned that economic growth will be lower than forecast.

The new Socialist government under President Francois Hollande, whose poll mantra had been growth over belt-tightening, could be forced to review some pledges as it needs to tighten budgets this year and next by up to 43 billion euros.

The state auditor, which warned that the budget must be adjusted by up to 10 billion euros this year and by 33 billion euros next year, raised prospects that sweeping cuts and deeper than expected are now inevitable.

The Les Echo financial daily's top headline on Tuesday was "France condemned to unprecedented austerity."

The newspaper foresaw that salary freezes, cuts in public sector current spending, and a review of grand infrastructure projects were in the pipeline. It said that the construction of high-speed rail networks could be cut back to help cut the public deficit.

"Who will pay?" the left-leaning Liberation newspaper asked, underscoring the government's "historic responsibility to take charge of France's financial recovery."

France is set to revise growth forecasts for this year to 0.4 per cent from 0.5 per cent and for next year to 1.3 per cent from 1.7 per cent.

During his election campaign, Hollande pledged to reduce public debt based on the earlier, more optimistic, forecasts.

Paris has promised its EU partners to reduce the public deficit from 5.2 per cent of output in 2011 to 4.5 per cent at the end of this year. Prime Minister Ayrault has already ordered ministries to slash spending by seven per cent next year and said some public sector jobs will be cut. The government will announce budget adjustments on Wednesday.

AFP