French central bank urges government to cut spending

The French central bank waded into troubled and highly controversial waters on Tuesday, urging the government to cut spending and avoid raising taxes further. The head of the central bank, Christian Noyer, issued his admonishment in a letter a day before the European Commission states its view of the performance and outlook for reforms of EU economies. The Commission is widely expected to press France to do more, and quickly, to restructure its public finances and economy. France, together with Germany, is one of the two main pillars of the eurozone. Noyer, who also sits on the monetary policy council at the European Central Bank, urged the government to set about cutting the number of people with public-sector, civil servant status, and he defended the line taken by EU bodies demanding radical action to correct public finances. In a letter to President Hollande and to the presidents of the Senate and the National Assembly, Noyer declared: "To achieve the announced targets, it is now necessary to concentrate efforts on public spending, given the high level of tax pressure attained and the impossibility of increasing charges on businesses without worsening activity and employment further." Noyer said he expected growth of the French economy to be "close to zero" this year. The ECB, together with the Commission and the International Monetary Fund, forms the "Troika" of auditors which ensures that those countries which have received bailout help apply radical reforms in order to qualify for each slice of funding. France is not among the countries rescued and is able to borrow at exceptionally low interest rates, but there is concern, notably in Germany, about the pace of reform in France. In a reference to what are commonly termed austerity policies, Noyer said that those who objected to what they considered "excessive constraints" had got it wrong and had an "erroneous" vision of the situation. He said: "If rules for European discipline exist, it is because they are necessary for the cohesion and the balance of the eurozone. At the beginning of May, the European Commission granted France en extra two years, until 2015, to reduce its public deficit to within the ceiling limit of 3.0 percent of gross domestic product. But this was on condition that the government push ahead with structural reforms to raise efficiency. Such talk is anathema to forces on the left in the majority supporting the Socialist-Green government elected a year ago. On one area of particular sensitivity, the length of contributions to pension systems and the retirement age, Noyer urged the government to undertake "wide-ranging" reforms to bolster the pension budgets, which are heading into big deficits. On a recent visit to Germany, Hollande praised the courage of reforms by a previous, Social Democratic government in Germany, widely credited with putting the German economy in its relatively strong position today. An increase of pension contributions, or of the retirement age, appeared "ineluctable", Noyer warned. Regarding social welfare spending overall, he said that temporary or partial action not to increase allowances in line with inflation could be justified. Noyer, who himself is in the midst of restructuring the central bank, said that there should be a drive at every level of public administration in France to increase productivity and to apply a "shock" to simply administration, as President Francois Hollande has promised. The objective should be to to do away with "multiple layers of structures" so as to gain in terms of efficiency and to save money. "Therefore the strategic long-term objective must be a trend of reducing the number of civil servants which is very high in France with regard to comparable countries," he said. Noyer's remarks come after a recent report by the prestigious public audit office, chaired by a Socialist, found that a main plank of the government's policy, the recruitment of 60,000 teachers, went in the wrong direction and that the focus should be on reforming the education system and getting value for money.