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BUDGET

French PM demands €5 billion spending cuts

French Prime Minister Jean-Marc Ayrault on Friday asked ministries to slash spending by €5 billion next year to help balance the budget amid low growth, spiralling unemployment and mass layoffs.

Published: 8 March 2013 12:13 CET
French PM demands €5 billion spending cuts
French PM Jean-Marc Ayrault (centre) mobbed by the press afte a recent speech in Paris. Photo: Lionel Bonaventure/AFP

Paris recently acknowledged that its forecast for 0.8-percent growth this year was out of reach, meaning its budget planning to reach the European Union deficit ceiling of 3.0 percent of output was no longer sufficient.

"In the state budget, we must identify a total of five billion euros in savings in 2014," the prime minister said in a statement .

"These savings will help balance the public accounts while ensuring the financing of measures we have identified to buttress the competitiveness of our economy, fight unemployment and cushion those who are the worst hit," he said.

Ayrault said the savings should come through structural reforms in each ministry, adding that talks would take place between ministries and the finance and budget ministers in March and April before their 2014 budgets were fixed.

Budget Minister Jerome Cahuzac recently said France would have to find six billion euros in extra revenues next year.

This year French ministries have been informed how much to cut spending in order for the government to generate 2.0 billion euros ($2.6 billion) in savings.

President Francois Hollande has underscored the need for "economies in all budgets" of the state agencies to allow for a balanced budget in 2017.

Hollande has said that the government has so far put most of the effort to balance France's finances on increased taxes but that now the emphasis would have to switch to expenditure.

The European Commission has indicated that it may give France some slack in achieving deficit targets, and the IMF has recently warned EU countries that cutting deficits too fast was harming growth.

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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