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France needs long-term spending rule to restore finances

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© Reuters. FILE PHOTO: Bruno Le Maire, French Finance Minister, attends a press conference in Paris to present the budget for 2022 at Bercy Finance Ministry, Paris, France on September 22, 2021. REUTERS/Gonzalo Fuentes

PARIS (Reuters) – France requires a multiannual spending rule in order to control its post-COVID public finances, according to the Organisation for Economic Cooperation and Development. This was announced on Thursday by the Organisation for Economic Cooperation and Development as it increased its growth forecasts.

This year, consumer spending rebounded after a mass vaccine campaign and the recovery of second-largest economy in the euro area has been beyond most people’s expectations.

The OECD stated in a detailed report about the French economy that growth is expected to be 6.8% in 2018 and 4.2% by 2022. It previously forecasted growth of 6.3% and 4.0% for next year.

While the public was unable to support the economy through the crisis, the finances became severely stressed and the debt reached new heights. France has plans for major investment in decarbonisation and is facing rising costs as a result of an ageing population.

France’s public spending is already at almost 60% of the GDP. The OECD suggested that France should have a multi-annual spending policy. It said it had a track record of reducing deficits in high-spending countries such as Sweden.

The OECD stated that this would make it more difficult for the government to reduce spending and conduct in-depth reviews. This is despite the fact that there are many public bodies at various levels.

Bruno Le Maire, Finance Minister, has supported a multiyear spending rule. He even wrote it into the Constitution. President Emmanuel Macron is not opposed.

The OECD stated that France’s retirement system is too fragmented, and France’s spending was too high. Macron abandoned his reform plans, as Macron faces a presidential race next April.

France is, along with many other European countries falling behind their CO2 reduction targets. According to the OECD, it needs not only green investment but also tax cuts that polluters can benefit from.

After it had sparked violent demonstrations and created a wider anti-elite movement, Macron decided to scrap a carbon tax.

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