France’s budget watchdog has called for another round of drastic cuts and an immediate freeze in public sector pay and benefits, warning that public finances are badly off track as deep recession eats into tax revenues.
The country’s Cour des Comptes said the budget is likely to breach EU targets by a wide margin yet again this year, perhaps reaching 4.1pc of GDP, risking a fresh showdown with Europe a time when French support for the EU Project is already in freefall.
The watchdog called for €28bn in extra belt-tightening over the next two years to prevent a debacle, demanding a “particularly vigourous effort” to rein in unemployment benefits, housing aide, pensions and help for families.
President Francois Hollande has already angered much of his own Socialist base with plans to cut spending next year in absolute terms for the first time since 1958, but this may be just start of the battle. The Cour des Comptes said France is not even “halfway” through its fiscal squeeze.
The warnings came as a blizzard of grim news dashed hopes for a rapid recovery from two years of slump. The data office INSEE said consumer confidence fell to 82 in June, the lowest since the series began 40 years ago.
A new report on French competitiveness country by Ernst & Young entitled “Last Chance” confirmed the worst fears of business leaders, concluding that the country is being left behind as foreign investment migrates to Germany and Britain.
The number of new industrial plants created by foreigners fell 25pc last year, and new job creation fell 53pc, with the emerging BRICS powers avoiding the country altogether. Ernst & Young said France’s anti-market body language had become almost “repulsive” for outside investors, not helped by a series of bitter labour disputes.
“France is drifting away. Like a receeding wave, it is retreating little by little from the global economy, imperceptibly in the past, but visibly so today,” said Jean-Pierre Letartre, Ernst & Young’s chief in France.
Mr Letartre said France still has world class companies in technolgy, transport and information services but is succumbing to a “generalised depression” that is feeding itself in a destructive dynamic.
The government has pencilled in economic contraction of 0.3pc this year, with a weak recovery starting in the second half, but a chorus of private economists fear far worse if there is any outside shock.
“It could be as much as minus 1.5pc,” said Jean-Michel Six from Standard & Poor’s. “The current account deficit is growing month after month, and this means it is depending more and more on the rest of the world to finance its growth. In my view, France has got just one more year to sort itself out.”
The Observatoire Economique think-tank said France is tightening fiscal policy by 1.8pc this year to meet EU deficit targets, or 2.5pc including the spillover effect of synchronized cuts in EMU trade partners.
“This is too violent: it is suffocating the economy,” said the Observatoire’s Marion Cochard. “Tightening of 0.5pc each year would be the right pace, given that the fiscal multiplier is at least 1.0 in France.
“A large part of Europe is already a liquidity trap, and the European Central Bank needs to start buying bonds and capping yields to avoid a brutal downward spiral.”
The Observatoire’s latest report said Europe risks sliding into full-blown deflation by 2014.
Mr Hollande has so far gone along with EU austerity demands, backing away from his pledge for a New Deal growth strategy in the elections last year. But his poll ratings have crashed at the fastest rate ever for a new president, and much of his own party is near revolt.
Officials in Brussels are watching with alarm as French leaders whip up a concerted campaign against European Commission president Jose Barroso, who in a loose moment described French Socialists as “extreme reactionaries” for clinging to cultural protection for France’s film industry and arts.
Parliament president Claude Bartolone, who called for showdown over austerity policies with Germany in April, said Mr Barroso is a relic of the last century. “He is a man past his time. His behaviour is insufferable. He incarnates a Europe of markets, capital and a forced march towards austerity,” he said.
Mr Hollande has been more careful, though he too warned recently that France is a self-governing sovereign state and would not tolerate further “diktats” from Brussels.
A recent study by Pew Foundation said French support for the European Project has crashed from 60pc to 40pc over the past year. Just 22pc now think EU economic integration is positive.
Describing a “dyspeptic France” that has become the new “sick man of Europe”, it said French attitudes have decoupled from the core EMU states and now resembles views in the crisis-stricken South. Fortunately for the French treasury, global bond investors are still treating its debt as if it were core debt.
Just 9pc think economic conditions are good, though it is worse in Spain (4pc) and Italy (3pc). The dramatic contrast is with Germany, where 75pc are content. France and Germany have never been so far apart in EU history.
Former premier Alain Juppe said the new anti-EU reflex is becoming dangerous. “There is the risk of a breakdown of the European Union that could threaten its existence. We must stop lying about Europe. From morning until night, eveything that now goes wrong is blamed on Brussels,” he said.
Yet Mr Juppe said Europe itself had failed to rise to the challenge. “Remember the famous Growth Pact, the €120bn they were talking about two years ago: not a single euro has actually been spent.”
Critics would say that, in a nutshell, is the whole story of eurozone crisis strategy.