Will the French austerity plan be enough?
Talk about the eurozone sovereign debt crisis seemed to have all but stopped once the Libyan affair has gathered pace once more. I suppose this is unsurprising given that this is an oil-producing country and so the jittery Gnomes of Zürich have now got something new to focus on as they crunch numbers. That was until yesterday when the French unveiled their long-awaited package of austerity measures (well I suppose it might have seemed like a long time for Monsieur Sarkozy). Perhaps it is cynical to believe that the catalyst for this was the fiercely denied speculation that the French were to follow in the footsteps of the USA and Japan in having their credit rating reduced. Even if it wasn’t true, it is not outside the realm of possibility considering that, according the Financial Times, the level of French sovereign debt was only just beaten by the Americans.
The plan to raise taxes and reduce spending by €1bn this year followed by a further €11bn next year does not seem quite as ambitious as George Osbourne’s plan to reduce the UK deficit within five years, but it should go some way towards shoring up what has always appeared to have been a fairly robust economy in recent months. This sudden need for an austerity plan could be symptomatic of the recent pledges to bail out some of the ailing peripheral eurozone countries. There has been increased speculation that Germany too may have absorbed all the bad debt from other countries that it can manage without bankrupting itself. And while the top earners in the country will be more than happy that their voices have finally been heard, indeed they were practically falling over themselves to hand money over to the government, the news has not exactly been broadly welcomed. French transport workers go on strike again today, over pension reforms, while this had been planned for a while, the timing is not really very favourable for Sarkozy from a political point of view.
The forecast for French growth has been cut to reflect these austerity measures, however, it still looks as though it will be better than Britain’s. This could all be down to something incredibly simple, and I would like the Treasury to take note of this please; my parents recently holidayed in the Alps, and one of the things they said to me on their return, was how noticeably lower the price of fuel was compared to here! I could not see anything in any report to say that the French would be raising taxes on fuel, and to be fair to Mr Osbourne he hasn’t either, but surely it is plain to see that lower prices at the pumps would enable a bit more growth over here? It would reduce the price of all commodities and would give people a bit more money in their back pockets to spend on things in shops. The government would make its money back for sure, there has to be something in that old saying “You have to speculate to accumulate!” Having said that, no one is speculating the future of Britain’s AAA rating!
It now remains to be seen if this set of measures is enough to stop the markets from panicking too much, or whether investors just see the eurozone countries as a risk too far. As the cost of insuring debt in european banks soars, leading financial experts are predicting a crash within days. Whether it is merely reactionary fear mongering, or it could be a threat of very real and imminent danger,only time will tell. It’s always possible that as things start to calm down in Libya, the reduction in the price of oil will gradually filter through to the customer. At the moment I guess this is something for which we can only make idle speculation. While there is always a risk in dabbling in the markets, gold really does seem to be the safest bet of all at the moment, with prices at record highs. This makes it ever more vexing that our egregious former prime minister Mr Brown sold half of the nation’s gold reserves when the price was just recovering from the worst slump in price for years; whether austerity measures stem the rate of growth or not I certainly have move confidence in George Osbourne than I ever had in Gordon Brown!