France unveils austerity measures

TEN days after President Nicolas Sarkozy of France warned that the European debt crisis had imposed a ''new reality'' on the country's finances, his government has announced about ?19 billion of proposed new budget cuts and tax increases as part of an aggressive effort to preserve the country's top-level credit rating.

By InvestSMART · 9 Nov 2011

By InvestSMART ·
9 Nov 2011

Comments

TEN days after President Nicolas Sarkozy of France warned that the European debt crisis had imposed a new reality on the countrys finances, his government has announced about ?19 billion of proposed new budget cuts and tax increases as part of an aggressive effort to preserve the countrys top-level credit rating.

Our country needs to roll up its sleeves, French Prime Minister Francois Fillon said.

Noting the debt crisis facing Greece, and the threat it poses to Italy and Spain, he warned that bankruptcy was no longer an abstract word.

The package of proposals includes a plan to speed up raising the minimum retirement age to 62, from 60. The change would come in 2017, instead of 2018. Taxes on Frances largest corporations will increase 5 per cent for fiscal years 2012 and 2013, or until Frances public deficit returns to below 3 per cent of gross domestic product.

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What austerity measures did France unveil in the latest budget announcement?

The French government announced about 19 billion of proposed new budget cuts and tax increases as part of an aggressive package intended to preserve the country's top-level credit rating. Key items in the package include speeding up the rise in the minimum retirement age to 62 (from 60) and increasing taxes on France’s largest corporations.

Why is France introducing these austerity measures related to the European debt crisis?

According to the article, President Nicolas Sarkozy and Prime Minister François Fillon said the European debt crisis has created a 'new reality' for France’s finances. The package is being presented as a response to risks posed by the debt crisis — notably the situation in Greece and potential threats to Italy and Spain — and as an effort to avoid the possibility of bankruptcy and to preserve France’s top-level credit rating.

How much are the proposed budget cuts and tax increases worth?

The government announced about 19 billion of proposed new budget cuts and tax increases in the package described in the article.

What pension reform was included — when will the retirement age change take effect?

The package includes a plan to speed up raising the minimum retirement age to 62, up from 60. The article states this change would come into effect in 2017, a year earlier than previously planned (2018).

How will corporate taxes change under France’s announced measures and who will be affected?

Taxes on France’s largest corporations will increase by 5% for fiscal years 2012 and 2013, or remain in place until France’s public deficit returns to below 3% of gross domestic product, as outlined in the article.

What does the government hope to achieve by preserving a top-level credit rating, and what did officials say?

The article says the package is an 'aggressive effort to preserve the country’s top-level credit rating.' Prime Minister François Fillon framed the measures as necessary to confront new fiscal realities and to guard against the risks highlighted by the European debt crisis.

How are the situations in Greece, Italy and Spain linked to France’s austerity announcement?

The article links France’s move to the wider European debt crisis, noting concerns about Greece and warning that the debt troubles could pose threats to Italy and Spain. Officials described the risk of 'bankruptcy' as 'no longer an abstract word,' which helps explain the urgency behind the announced measures.

What should everyday investors watch for following France’s austerity announcement?

Based on the article, investors should note the implementation timelines and fiscal benchmarks: the corporate tax increase applies to fiscal years 2012 and 2013 (or until the public deficit falls below 3% of GDP), and the retirement age change is slated for 2017. The government’s stated aim to preserve a top-level credit rating is also a key signal to monitor.