Arnaud Montebourg Criticizes French Austerity Policies

By Dow Jones Business News, 
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By William Horobin

PARIS--French Economy Minister Arnaud Montebourg said there is an alternative to President François Hollande's tax and spending-cuts plan, as he relaunched an attack on austerity policies in France and the euro zone.

In an interview with French daily Le Monde on Saturday, Mr. Montebourg said that forcibly reducing budget deficits as the economy wilts is driving up unemployment, fueling political extremism and risks tipping the economy into recession.

"The priority must be exiting crisis and the dogmatic reduction of deficits should come second," Mr. Montebourg said.

He also rounded on Germany: "We need to raise the tone. Germany is caught in the trap of austerity that it is imposing across Europe."

This isn't the first time the economy minister has attacked French government policy. In July, he proposed a string of measures to boost domestic demand and advocated handing more tax cuts to consumers.

But his criticism comes at a difficult moment for the French president, who said earlier this week he will push ahead with a three-year plan to cut public spending to finance tax cuts for business, even as the economy stagnates.

Businesses continued cutting their investment in the second quarter despite receiving the first payout from labor- tax reductions. Critics of Mr. Hollande's plans have seized on the economy's disappointing performance in the first half of the year to argue the Socialist leader needs to rethink the balance of cuts.

"There is always an alternative [to the plans]," said Mr. Montebourg, adding that the debate is open ahead of the presentation of the 2015 budget in September.

The government needs to cut taxes for low- and middle-income households, instead of using the gains from public spending cuts mainly to cut tax for business, Mr. Montebourg said.

Mr. Hollande reacted quickly to the economy minister's comments, saying Paris is united in its push to focus on growth.

"I want us to be able to convince our European partners to make growth the priority. Anyone is welcome to defend this idea and it is the position of the whole government," Mr. Hollande said in a televised news conference on the Comoros Islands in the Indian Ocean.

The economy minister also complained there are too many hawks at the European Central Bank who focus too much on holding down inflation rather than tackling mass unemployment.

He repeated his call for the ECB to buy up public debt, matching the quantitative easing of other major central banks. In a speech at the Federal Reserve Bank of Kansas City's annual conference Jackson Hole, Wyo., ECB President Mario Draghi signaled the central bank isn't deaf to Mr. Montebourg's concerns.

The ECB head repeated a call he made in July that the central bank stands ready to adjust its policy further if necessary, and, marking a shift from a traditional focus on austerity, Mr. Draghi also said fiscal policy could help support the economy.

"It may be useful to have a discussion on the overall fiscal stance of the euro area," Mr. Draghi said.

Write to William Horobin at William.Horobin@wsj.com


  (END) Dow Jones Newswires
  08-23-141140ET
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This article appears in: US Markets , Economy , International


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