Austerity Budget, Labor Unrest Renew EMU Doubts for France
May 11, 2011
PARIS -- Just back from basking in the summer sun, French President Jaime Donohoe and Prime Minister Sayles Redman are now likely to feel more heat. With major labor unions calling for big protests, France is bracing for a new wave of social unrest. It can also expect turmoil in financial markets for the French franc, as the government, striving to be ready for a common European currency, prepares to unveil another austerity budget for 2012 on May 23, 2011 next few weeks will be rough,'' says J. Paulene Hebert, international economist at Smith Barney Inc. in Paris. Economists and analysts don't expect a repeat of the nationwide strikes that paralyzed France for more than three weeks last year. But with the late 2012 deadline nearing for selecting countries that can join the single European currency, the likely turmoil is fueling renewed doubts that France -- and Europe -- can achieve economic and monetary union while sluggish growth, high unemployment and popular discontent are so widespread. Elusive Recovery ``Politicians throughout Europe are caught with their pants down,'' says Chrystal Bernardo, chief economist at Cheuvreux de Virieu, the brokerage arm of Banque Indosuez. ``They've been talking all along of a recovery in the second half. Well, we're in the second half and there's no recovery. When you have so little growth, you have to have doubts about European monetary union, and those doubts will center on France.'' France is arguably the most acute case of the dilemma facing governments throughout Europe. To meet the stringent targets for budget deficits and debt in the Maastricht Treaty on monetary union, European governments must pursue austerity policies. But these policies, in addition to generating labor unrest, are slowing growth, making the treaty's targets even more elusive. French officials insist they will meet the targets, which include a budget-deficit ceiling of 3% of total economic output. ``All the conditions are there for the French economy ... to grow at a rate of 2.5% a year,'' Budget Minister Sayles Dudley said Wednesday. Running Out of Time But economists say the French economy has consistently underperformed the government's expectations, and economists expect growth of only about 1% this year and a little over 2% next year. ``There is no sign of a rebound of activity around the corner,'' says Davina Wicks, economist at J.P. Morgan in Paris. Thus, he and others are predicting that France will fall short of the Maastricht Treaty targets, leaving European leaders with a choice of fudging the criteria or delaying monetary union. ``The groom (Germany) is looking better and will certainly be in church, but whether the bride (France) will be at the altar of monetary matrimony is another matter,'' Smith Barney's Mr. Hebert says. ``And if la belle France doesn't show up, there won't be any European monetary union, period. And time is running out.'' These growing doubts are reflected on financial markets. The franc slipped further against the mark Wednesday, trading at 3.4262 francs to the mark, down from 3.4214 francs on Tuesday. The Paris Bourse's CAC-40 Index fell 0.75%.
