Amid Campaigning, Sarkozy Enacts Austerity Plan

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Like many countries in Europe, France has to cut spending and increase taxes to try to lower its national debt. However, President Nicolas Sarkozy has a particular problem with this unpopular policy — he has just started a presidential re-election campaign.

MICHELE NORRIS, Host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

MELISSA BLOCK, Host:

And I'm Melissa Block. France might be known for its good living and generous social welfare benefits, but like other countries in Europe, it's also deeply in debt. With the euro debt crisis worsening and France clinging to its triple A credit rating, President Nicolas Sarkozy has been forced to take a rare and risky step in French politics. He's enacted a national austerity plan. And as Eleanor Beardsley reports, the move comes just eight months ahead of a presidential election.

ELEANOR BEARDSLEY: In France, the word austerity or rigueur has always been a dirty one. And not since President Valery Giscard d'Estaing called for belt tightening during the oil crisis of the late '70s has a French leader even uttered the word anywhere near an election year. But French Prime Minister Francois Fillon said the country could not live beyond its means forever.

FRANCOIS FILLON: (Through Translator) I'm not scared to talk about austerity. But let's be clear. What we're doing has nothing to do with what Spain, Portugal or Ireland has had to do, not to mention Greece. We're not cutting salaries or raising income taxes. We're simply adjusting the budget to a situation that's very difficult.

BEARDSLEY: The plan is supposed to trim about $15 billion from the French budget next year and bring the deficit in line with eurozone limits of 3 percent of GDP by 2013. But analysts say the plan falls short because it doesn't take on the long-term issues that are the real cause of the French deficit, like unnecessary layers of government and the rising costs of health care. Instead, the package relies mostly on closing loopholes and enacting many tax measures. It will slap an extra 3 percent tax on incomes over $700,000. But the wealthy aren't complaining. In fact, 16 French super rich recently wrote an open letter to the government saying they were ready to pay more in the spirit of solidarity.

Inside this Paris bar and tobacco shop is where you'll find the complainers. Smokers already shell out more than $8 a pack. But the cost of cigarettes and alcohol - excepting wine, of course - is about to go up. Smoker Guy Lafarge says he tries to take it in stride.

GUY LAFARGE: (Through Translator) What can you do? It's always the smokers who finance these operations. It's not really fair to keep putting all the tax burden on us, but nobody ever asks our opinion.

BEARDSLEY: The so-called austerity package has generated some unexpected controversies. A value-added tax hike on theme parks was suddenly dropped after influential amusement park owners complained. And a new tax on carbonated sodas sparked rumors that Coca-Cola was going to cut its investment in France, although the company later denied it. A tax hike on luxury hotels was adopted with little fuss. Bloomberg financial reporter Gregory Viscusi says Sarkozy's idea to focus on the wealthy could be a good campaign move.

GREGORY VISCUSI: Sarkozy's been accused of being a president for the rich. At least this time, he has calibrated it to hit the wealthier segments of the population, which will take a little bit of the sting out of any criticisms the socialists could make about this package.

UNIDENTIFIED WOMAN: (Foreign language spoken)

BEARDSLEY: The opposition socialists attacked Sarkozy's plan as it made its way through the French parliament this month. They're desperate to beat Sarkozy next May, but French finance minister Francois Baroin accused them of having no coherent alternative plan.

FRANCOIS BAROIN: (Foreign language spoken)

BEARDSLEY: You guys say you're going to lower the retirement age back to 60 if you take power and create thousands of public sector jobs? Well, good luck, said Baroin, who helps an economy like that? French debt is around 80 percent of GDP. Sarkozy hopes his austerity plan will be enough to lower that figure and reassure markets at least until next May's presidential vote. He also, no doubt, hopes to fare better than Valery Giscard d'Estaing, the last president to campaign while calling for austerity. He was soundly beaten by his socialist opponent, Francois Mitterrand. For NPR news, I'm Eleanor Beardsley in Paris.

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