PARIS (MNI) – In the face of growing doubts about Europe’s
potential for economic growth in a period of deficit reduction, French
Prime Minister Francois Fillon argued Monday in favor of a strategy of
selective austerity and investment in the future.

Speaking at conference here, Fillon dismissed current market
tensions as an “overreaction” and declared that a contradiction between
growth and fiscal consolidation “does not exist.”

Indeed, the healthy financial situation of business and households
in Europe’s core countries, the high level of savings and the
opportunities for investment at low interest rates all make the case for
debt reduction now more favorable than it might appear, he said.

The return of confidence could unleash a self-reinforcing spiral of
growth in the private sector, he ventured.

Whereas high debts act as “brake on growth,” a lasting reduction in
the public deficit reenforces the confidence of firms and households,
“which invest more in anticipation of a lighter tax burden in the
future,” Fillon argued, citing an IMF study promising significant
returns to growth after five years of debt reduction.

“To re-create leeway in our budget policy, we must not aim to
stabilize public debt, but rather roll it back below 60% of GDP,” he
said.

The new austerity measures unveiled last month will not penalize
growth in the short term, and ongoing structural reforms will bolster it
over the longer term, the prime minister asserted, citing the reduction
in local business taxes, subsidies for private R&D, the streamlining of
the civil service and the reform of the state pension system.

To enhance growth, Europe must encourage capital risk, create a
European fund to protect patents and focus investment in areas of
“excellence” like energy, aeronautics, environmental protection and bio-
and nano-technologies, he said. It must also re-orient its trade and
competition policies to establish a level playing field with its key
rivals worldwide.

Fillon also underscored France’s solidarity with neighboring
countries under mounting pressure from financial markets: “There can be
no doubts about our commitment to protect the Eurozone.”

–Paris newsroom +331 4271 5540; email: ssandelius@marketnews.com

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