FRANCE FACES PRESSUE TO CHANGE POLICIES
France's right wing government is facing
growing pressure to modify its economic policies after revising
down its 1987 growth targets and revising up its inflation
forecasts for this year.
    Moving reluctantly into line with most private sector
forecasts the government yesterday raised its 1987 inflation
estimate a half percentage point to 2.5 per cent and cut its
economic growth estimate to between two and 2.8 per cent from a
2.8 per cent target written into the annual budget last
september.
    Finance Minister Edouard Balladur said the revised figures
would not push the government off its chosen mix of price
deregulation, budget-cutting rigour and pay restraint.
    But Trade Union leaders served immediate notice they would
push to protect the purchasing power of their members, raising
the spectre of a vicious spiral of wage and price rises.
    And bank economists contacted by Reuters said they believed
Prime Minister Jacques Chirac could be forced by slow growth
and rising unemployment to reflate the economy later this year,
perhaps in the autumn, to boost his prospects in Presidential
elections due by April 1988.
    "The outlook is more worrying than it was a few weeks ago,"
said Societe Generale economist Alain Marais. "We have the
impression it may be difficult to get even two per cent growth
this year."
    "The big question is whether the government's policy of wage
moderation will be maintained," he added.
    The government has set public sector wage rises at aboout
1.7 per cent this year, with a three per cent ceiling for rises
justified by increased productivity.
    But the head of the socialist CFDT union federation, Edmond
Maire, meeting with Chirac today, renewed union demands already
rejected by the government for indexation clauses to be built
into future pay contracts to safeguard workers against higher
prices.
    Calling the government's policies "unbalanced and unjust," he
also demanded investment incentives to boost employment. He
announced after his meeting that Chirac had told him the
government would spend two billion francs on a series of
measures to boost employment and training
    Andre Bergeron, a widely respected leader of the moderate
Force Ouvriere labour group, put similar demands to Chirac
earlier in the week while the Communist-led CGT, the largest of
France's unions, declared the defence of its members earnings
its top priority.
    But with unemployment nearing 11 per cent last month, and
still rising, government supporters and some economic analysts
said they were confident Chirac could resist union pay demands.
    "Salary indexation was ended by the previous Socialist
government and I dont think this administration is going to
reverse that," commented Michel Develle, economist at
recently-privatised Banque Paribas.
    Damaging transport and electricity strikes over Christmas
and the New Year, partly blamed by the government for higher
inflation, had undermined the unions power and popularity, he
said.
    Develle said Paribas expected inflation to rise even more
than the governments revised forecast, perhaps to 2.6 or 2.7
per cent this year against last years 2.1 per cent.
    "But that would still be an exceptional achievement
considering that for the first time since the Second World War
all french prices have been freed," he commented.
    Finance Ministry officials said that the governments
abolition of price and rent controls last year was responsible
for nearly a quarter of a 0.9 per cent surge in January living
costs.
    But they claimed it was a once-off phenomenon that should
have no knock-on impact on the rest of the year.
    Both Marais and Develle said they agreed with that, so long
as the government kept wages under control.
    Prices could rise 1.5 per cent in the first three months of
1987 and two per cent in the first half year, fractionally more
than forecast this week by the National Statistics Institute,
INSEE,  Marais said. But the second half year should be better,
he added.
    Ironically, one side effect of higher inflation could be to
help the government achieve its aim of cutting the state budget
deficit, several analysts said.
    So long as public sector wages are held down, higher Value
Added Tax receipts resulting from rising prices should offset a
loss in revenues that otherwise would result from slower than
expected growth, they said.
   
 Reuter
