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ECONOMY

French economy minister ‘worried’ by British ‘disaster’

France's economy minister said Friday that he was worried by the financial turbulence in Britain, criticising Prime Minister Liz Truss's economic policies for causing a "disaster" of high borrowing rates for her country.

French economy minister 'worried' by British 'disaster'
French Minister for the Economy and Finances Bruno Le Maire during a press conference in Paris on September 26, 2022. (Photo by STEPHANE DE SAKUTIN / AFP)

“I’m not worried about the situation in the eurozone,” Bruno Le Maire told Europe 1 radio when asked about the risk of the crisis spreading. “On the other hand, I am worried about the British situation.”

“What does it show? It shows firstly that there are costs for financial and economic policies,” he said.

Truss’s “mini-budget” announced last Friday included major tax cuts that would need to be financed by extra borrowing, spooking investors who immediately questioned the credibility of the policies and Britain’s financial standing.

“When you take on major costs like that, with spectacular announcements, as some opposition parties want to do in France, it perturbs the markets. It perturbs financial balances,” Le Maire said.

“And it leads to a real disaster with interest rates which are 4.5 percent or even higher in Great Britain. We have interest rates which are reasonable, which are quite close to Germany’s because there is consistency in our economic and financial policymaking,” he said.

“The second thing is that leaving Europe comes with a considerable cost because Europe is a protection,” he added, referring to Britain’s exit from the European Union.

The pound fell to an all-time low against the dollar and the yield on 10-year British government bonds — which sets the cost of borrowing for the government — briefly rose to above 4.5 percent on Wednesday.

That led the Bank of England to intervene with a £65 billion emergency bond-buying programme to stabilise the market.

Le Maire has been under pressure this week to explain his own budget choices, with the government planning to borrow a record €270 billion next year and a run a deficit of 5.0 percent of GDP.

Some analysts see the deficit as likely to be higher because of Le Maire’s optimistic growth forecast for the economy and assumptions about savings from a controversial pensions reform that has not been passed by parliament.

French-British relations have been rocky for years, particularly under former prime minister Boris Johnson, with a host of issues souring ties from Brexit and fishing rights to migrants.

French ministers had been reluctant to comment on Truss since she came to power despite deep concerns about her Brexit policies and her statement while campaigning that she did not know if French President Emmanuel Macron was a “friend or foe.”

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POLITICS

French minister: US green plan should be ‘wake-up call’ for EU industry

French Finance Minister Bruno Le Maire on Friday said Washington's $430 billion plan to spur climate-friendly technologies in the United States must be seen as a wake-up call for Europe.

French minister: US green plan should be 'wake-up call' for EU industry

The EU “must be able to sweep in front of our own door” before worrying about the effects of the US climate plan on European industry, Le Maire told AFP in Washington, where he was part of French President Emmanuel Macron’s US state visit.

Even though the EU has already “changed its approach” on promoting green industry, the US climate plan must be seen as a “wake-up call” in the European Union, he added.

Le Maire’s comments came as EU countries have poured criticism on Washington’s landmark Inflation Reduction Act (IRA), seeing it as anti-competitive and a threat to European jobs, especially in the energy and auto sectors.

Subsidies for green energy

The act, designed to accelerate the US transition to a low-carbon economy, contains around $370 billion in subsidies for green energy as well as tax cuts for US-made electric cars and batteries.

Macron on Wednesday slammed the plan’s “Made in USA” provisions as “super aggressive” for European businesses.

But at a joint press conference with Macron, Biden said that he and the French leader had agreed to “discuss practical steps to coordinate and align our approaches”, though he said he would not apologize for the US plan.

Biden added the IRA was never intended to disadvantage any US allies.

Threats of retaliatory measures

Last month, EU Internal Market Commissioner Thierry Breton threatened to appeal to the World Trade Organization and consider “retaliatory measures” if the United States did not reverse its subsidies.

Le Maire also criticized the EU’s own climate spending plans, arguing that they were too cumbersome and loaded with red tape.

“If the ambition is the same” as the Europeans, the United States relies on methods that “are simpler and faster”, he said.

“They put immediate and massive tax credits where we provide state aid (to specific projects) which sometimes take two years to be adopted and are too complex to implement,” said Le Maire.

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