French Finance Minister Faces Tough Choices Over Tax

by Ulrika Lomas, Tax-News.com, Brussels

16 January 2003

Analysing the difficult choices which face French Finance Minister, Francis Mer over the coming year, the Wall Street Journal yesterday suggested that France is likely to become the first country to unapologetically flout the terms of the EU's Stability and Growth Pact, and may even force a change in the pact's conditions.

Outlining the dilemma faced by the country's right-wing government, the WSJ observed that:

'If it wants to hold its budget deficit within the limits laid down by the European Union's Stability and Growth Pact, it has to slash public spending and go slowly on promised tax cuts. But if it wants to retain its popularity at home, it needs to boost economic growth by maintaining public spending and delivering on those tax cuts.'

'Either way, someone's going to be unhappy, and France will have to pay a price. That could mean an EU fine if it breaches the pact, or it could mean feisty unions, more jobless people, and demonstrations in Paris streets if it fails to deliver on growth.'

However, despite recent conciliatory moves on Mr Mer's part towards the European Union, the general consensus, according to the newspaper, is that the former is the more likely of the two options.

'On balance, Mr Mer would rather rile Brussels than upset French voters, consumers and businessmen,' London-based Citigroup European economist, Jean-Francois Mercier told the WSJ. This sentiment was echoed by Gail Fosler, chief economist of New York-based research organization, the Conference Board. She observed that:

'Francis Mer is blunt, outspoken, and will use this opportunity to change the structural charter.'

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