Social unrest will brew in France if newly elected President Francois Hollande decides to do what he campaigned against before elected — prioritize austerity measures, said New York University economist Nouriel Roubini.
France is enjoying a “honeymoon” with investors looking to cut their exposure to countries like Greece and Spain.
That won’t last forever, he said, and a new budget championing austerity to keep investors in the country could bruise Hollande’s popularity.
Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.
“Hollande was not elected by his base to pursue austerity and reforms, but rather to boost growth and hiring in the public sector,” Roubini wrote in a note to clients, according to Business Insider.
Austerity measures could wipe out what little growth the economy is showing this year, while unions are already edgy over talk of austerity measures, a recipe for unrest.
The country is proposing a 75 percent tax rate on millionaires, which has already caused business leaders such as Bernard Arnault, CEO of luxury goods giant LVMH, to consider leaving the country, and cutting public spending will be hard enough on its own.
“Many problems are brewing in France,” Roubini said.
Other experts agree that France is facing some tough decisions as it seeks to streamline its fiscal house.
“It’s a big risk, because it’s possible that, as they try to reduce government spending and return to a balanced budget, they have a negative impact on growth,” said Christopher Bickerton, an associate professor at Paris’ Sciences Po University, according to Reuters.
Hollande might be hoping an austere 2013 budget will lead to growth down the road, though such a plan carries risks.
“If growth falls, deficits increase, and they won’t be able to balance the budget,” Bickerton said.
“So, it’s clearly a risk that he is taking, but that’s the calculation.”
Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.
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