An alternative to popular faith
Sun May 30, 10:20 am ET, PARIS (Reuters) – “France’s Budget Minister Francois Baroin said on Sunday the objective of keeping the country’s AAA rating was ‘a stretch’ and had an impact on economic policy decisions related to cutting the deficit.
“[…] talks are taking place on pension reform — a key part of the plan to cut the deficit — and France has frozen central government spending barring pensions and interest payments between 2011 and 2013. . . Talks are taking place on — a key part of the plan to cut the deficit — and France has frozen central government spending barring pensions and interest payments between 2011 and 2013. . . France is also considering introducing a constitutional amendment that would set binding budget deficit limits.
“Baroin added: ‘We must maintain our AAA rating, reduce our debt to avoid being too dependent on the markets, and we must do this for the long-term.’
“Fitch Ratings said on Friday the recently stepped-up dialogue in France was an important first step in addressing France’s fiscal deficit. France has forecast its deficit will come in at 8 percent of GDP this year, and aims to bring it down to within the European Union’s 3 percent limit by 2013.”
1. Since economic growth requires money growth, France’s economy will continue to be limited by EU rules, which restrict French money creation.
2. Worse yet, France’s economy will be sent into recession by a constitutional amendment further restricting money creation. This is quite serious. The EU has the ability to change its rules quickly, but constitutional amendments are slow to pass and slow to undo.
3. Thousands of people who depend on pensions, interest payments and other government cash will receive less spending money, a situation that not only will punish them, but will punish then entire French economy, leading to an economic disaster.
And this is the damage the debt hawk mythology can wreak.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity