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DEBT

Embattled Hollande flies to Spain in search of ally

Deeply unpopular at home as he struggles with a stumbling economy, French President Francois Hollande headed to Spain on Wednesday seeking an ally to help avert new debt crises and to put jobs growth at the top of Europe's agenda.

Embattled Hollande flies to Spain in search of ally
Hollande headed to Spain on Wednesday hoping to generate support from another beleagured eurozone leader. Photo: Fred Dufour/AFP

Hollande flew to Madrid at a difficult moment, with France's economy shrinking 0.1 percent in the third quarter and a poll this month showing only 21 percent of the French approved of his policies, the lowest rating since the presidential system began more than 50 years ago.

The Socialist French leader, accompanied by his Prime Minister Jean-Marc Ayrault and eight ministers, can expect to find support from Spain's conservative Prime Minister Mariano Rajoy for reforms to how the eurozone operates at a December 19-20 European Union summit.

The French president, who was booed at a Remembrance Day ceremony in Paris this month, will find a warmer reception in Madrid where his team will have a working lunch with their hosts before a summit and a joint news conference with Rajoy.

Despite objections in Germany, Hollande and Rajoy both advocate creating a single banking authority capable of directly bailing out a member country's troubled banks, without asking the host state to foot the bill and thus push up its sovereign debt.

A French presidential official said it was the plight of Spain that sparked the original banking union proposal in June 2012, when the country faced being "trapped in a negative spiral" of rising sovereign debt and larger banking rescues.

Spain's eurozone partners last summer agreed to extend a banking rescue loan of up to 100 billion euros to shore up shaky Spanish institutions laden with weak assets since the collapse of a decade-long property bubble in 2008.

Madrid ended up using just 41 billion euros of the money for a bank restructuring programme, which ends in January, and the money it borrowed will automatically add to Spain's sovereign debt pile.

Hollande will find a friendly ear, too, when he pushes for the eurozone to support economic growth.

French officials expect the president to repeat his call, made at a meeting in Rome last week with Italian Prime Minister Enrico Letta, to put "employment growth and stability at the heart of the decisions for the European summit in December".

Hollande is looking for support to boost investment capacity and pro-growth policies across the eurozone, French officials said.

Growth is a major concern for Spain, the eurozone's fourth-biggest economy, which has just crawled timidly out of two years of recession with 0.1 percent growth in the third quarter of this year.

Analysts say that level of growth is insufficient to create jobs in Spain, where the unemployment rate is 26 percent, rising to a staggering 54 percent for under-25s.

The summit in Madrid will discuss France's proposal for an "economic government" of the eurozone with a permanent Eurogroup chairman to oversee members' economic policies.

It will also specifically address unemployment. French officials said Madrid was pushing for an efficient use of European resources to combat youth joblessness.

Other issues on the agenda are migration, defence, anti-terrorism measures and transport.

A new high-speed railway from Paris to Barcelona is due to be opened in mid-December. Officials say it will cut the non-stop train journey time between the two cities to six hours and 20 minutes.

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ECONOMY

IMF urges France to step up spending reforms to rein in debt

The International Monetary Fund on Monday warned France that its public debt is "too high for comfort", calling on the nation to tackle the issue by stepping up spending reforms.

IMF urges France to step up spending reforms to rein in debt
'Yellow vests' protest in front of the stock exchange in Paris in opposition to Macron's policies. Photo: AFP
In a report outlining preliminary findings of its 2019 mission, the IMF said tax and labour market reforms had helped keep the economy resilient despite slowing growth.
   
But it urged the government of President Emmanuel Macron to find further ways to curb spending and to ensure the measures have public support, in a nation rocked by weekly anti-government “yellow vest” protests. 
   
“France's public debt is too high for comfort,” said the IMF mission's concluding statement.
   
“While there is no immediate risk, as the currently low interest rates suggest that higher debt can be sustained at this juncture, the elevated debt level provides little comfort from a medium and long-term perspective.”
 
French public debt rises above €2,000,000,000,000 Photo: AFP
 
The IMF noted that public debt has risen from around 20 percent of gross domestic product in the 1980s to close to 100 percent. 
   
“Additional spending reforms are needed to ensure that the ongoing tax-burden reduction can be sustained and public debt placed on a firm downward path,” the statement said. 
   
The IMF maintained its growth forecast for France at 1.3 percent this year, predicting it would “stabilise at around 1.5 percent in the medium term, predicated on a recovery of domestic and external demand and on gains from recent reforms”.
   
It added that while the current outlook is positive, “risks have risen”, citing global trade tensions, the uncertainty over Britain's exit from the European Union and “in France, erosion of support for necessary economic reforms among the general public”.
 
On coming to power in 2017, Macron immediately set about trimming the deficit to bring it in line with an EU limit of three percent of GDP, which the eurozone's second-biggest economy had persistently flouted for a decade.
   
In March the national statistics agency Insee said France's budget deficit fell to a 12-year low of 2.5 percent of GDP in 2018, a greater-than-expected decline achieved despite falling growth and purchasing power.
   
But the announcement came after months of yellow vest protests, sparked last November over plans to increase diesel prices and raise taxes on pensions. 
   
Macron announced a package of tax cuts and income top-ups worth 10 billion euros in December, following the first month of the protests.
   
And in April, the government announced new plans for fresh tax cuts, to be funded by axing corporate tax breaks, reducing public spending and introducing longer working hours.
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