French ready for pain as debt reality bites

France's Prime Minister has just announced another round of belt tightening measures in France in order to avoid any damage that could be done to their credit rating.

By Nicholas Vinocur
PARIS | Tue Nov 8, 2011 6:38pm EST
Reuters

(Reuters) - Budget cuts that might once have sent French people marching into the streets look set to pass in silence as anxiety about debt and deficits, long non-issues in free-spending France, loom large in voters' minds ahead of a presidential election.

Just a year ago, unions staged spectacular protests against a two-year hike in the legal retirement age, mobilizing hundreds of thousands of demonstrators over many months, and in some places blocking access to fuel supplies.

The reaction was much less explosive this week after Prime Minister Francois Fillon unveiled France's second round of belt-tightening in just three months, intoning that the "hour of truth" had come to defend France's triple-A credit rating.

Far from timid, the latest push for 18.6 billion euros in savings over the next two years targets welfare benefits enjoyed by most families in France, severing the link to inflation and capping a yearly increase at 1 percent.

In a country viscerally attached to a tradition of generous welfare provision, toying with benefit payments is politically risky, even when relatively moderate.

The cost of books, eating out and getting the house painted will rise too, albeit marginally, due to a rise in the lower rate of VAT sales tax, from 5.5 percent to 7 percent.

Yet the response has been muted, and early signs are that little outcry is to be expected. Labor unions issued statements denouncing the new round of cuts as unwarranted austerity. But they are vague about any plans to respond with protests.

"We plan to meet in the next few days to discuss how to respond," Damien Cerqueus, a spokesman for the CFDT union, one France's largest, told Reuters.

Union members and some pollsters say the French will wait until next April's election, in which President Nicolas Sarkozy is set to face off against Socialist candidate Francois Hollande, to unleash their discontent.

In a twist for France -- where government debt is not the mainstay of public debate it can be in Britain or the United States -- the deficit and how to bring it under control have now become unavoidable electoral issues.

"There's been a rapid transformation in views on debt," said Frederic Dabi of the IFOP polling institute. "In the past year public debt has gone from being a concern for 32 percent of the electorate to 50 percent, on par with concerns about security."

"That's a meteoric rise."

READY FOR SOME PAIN

There is little dispute about what has changed, as the debt crisis sparked by Greece two years ago refuses to go away and euro zone states announce one austerity plan after another.

With a high debt to GDP ratio of 86.2 percent, France is trying to ensure it does not get caught up in the turmoil that has spread from Greece to countries as big as Italy.

The crisis remained abstract as long as the French felt protected by a welfare safety net. But it took on a menacing air in August when the United States lost its triple-A debt rating.

Moody's is reviewing France's AAA rating.

"Not everyone in France understands that, ultimately, the state's money is also your money," said Marc Ulmann, head of Club d'Avenir, a business network devoted to thinking about France's future. "I think that state of affairs is changing, which has a lot to do with fears about the AAA (rating)."

Historically, French people have felt far less concerned about government debt levels than German, for example.

But they are learning fast as Sarkozy and Hollande compete for the higher ground as responsible financial managers.

Hollande is the more popular overall but the two are more or less neck to neck in terms of credibility on deficit control. Hollande had a slight edge over Sarkozy in an October IFOP poll.

Another IFOP poll showed 57 percent of the public would be ready to accept "painful measures" to remedy the situation.

If growth wanes in France, the self-sacrificial mood could quickly shift.

"You go into the street (to protest) for something that hits you, personally, like working longer for your pension," said Bruno Jeanbart at Opinionway polling agency. "No such issue has yet been identified, but that does not mean it will not be."

(Reporting By Nicholas Vinocur; Editing by Brian Love and Peter Graff)

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