Austerity for France

Press, 16 June 1982, Page 29

Austerity for France

PA Paris The French Government yesterday set out to gain crucial union and business acceptance for austerity measures aimed at curbing inflation, as the franc settled at a new low against the dollar and European currencies. In a major shift in its expansionist economic strategy, the Socialist administration announced a fourmonth freeze on wages and prices and limits on public deficits. Part of the measures was a franc devaluation of 10 per cent against the West German mark and Dutch guilder, and 5.75 per cent against other European

monetary system currencies. The package is tougher than any imposed by the previous conservative administration. and press commentators and economists said that the Government was gambling on its ability to convince its main union allies to accept restraint. The big Socialist-led C.F.D.T. and Communist C.G.T. labour confederations gave the measures a cautious initial welcome, but the French Prime Minister (Pierre Mauroy) was loudly jeered when he announced the wage freeze to the C.G.T. annual congress yesterday. As Mr Mauroy began the first in a series of meetings with union leaders, on the foreign exchange market the

franc was fixed at a 24-year low of 6.7035 to the dollar, down from 6.2610 on Friday. Since the last devaluation in October, the French currency has been under pressure because of the Government's expansionary economic programme, out of step with the anti-inflationary policies of West Germany and other competitors. French inflation is now running around 14 per cent while the West German rate is about five per cent. Although ministers talked of a breathing space that would create the conditions for inflation to be brought down to 10 per cent, economists said a further franc devaluation could be necessary this vear if the Govern-

ment failed to modify its policy of trying to generate rapid growth. President Francois Mitterrand emphasised at a news conference last week that his administration had no intention of changing course in its growth strategy. Economists said it was difficult to see how he could drastically reduce inflation at the same time as trying to stimulate a rapid growth in demand for goods and services. Explaining the devaluation today, the French Finance Minister (Jacques Delors) said that the Government’s policy of raising pensions, minimum wages, and familv allowances had to be paid for.