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War to Save the Euro: The Battle of France

If you think you can balance a budget with huge tax increases alone, take a look at France: President François Hollande’s plan to avoid necessary spending cuts by soaking the rich isn’t panning out. Awaiting Hollande is a major showdown with Angela Merkel, the FT reports:

The problem for Mr Hollande is that Brussels and Berlin may now insist that France wields an additional budgetary axe to ensure the deficit target is met after all—in other words they may insist on more austerity. […]

But the government is reluctant to have to come up with further savings. It is already running into resistance from some ministers … Above all, it fears more cuts would hit domestic consumption, the main driver of growth in France.

“We must not add austerity to the risk of recession,” Pierre Moscovici, the finance minister, told a meeting with foreign correspondents in Paris on Monday.

Hollande and the Socialists were elected on an anti-austerity platform, but in order to comply with Eurozone requirements, France’s deficit must be less than 3 percent of GDP. This won’t happen without exactly the kinds of cuts Hollande swore to fight. If France flouts the budget rules this time around, it’s game over for the kind of fiscal discipline Merkel wants as a trade-off for helping support indebted Eurozone countries.

So what’s it going to be? Nobody knows, but it’s possible that the Battle of France will be the decisive event in the war to save the euro.

 

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