Can France meet the Maastricht Criteria? slower economic growth poses new challenges to economic policy makers

Abstract

With its 1996 budget the French government has all but completely abandoned its election promises. At the same time, in economic policy terms it has gained credibility amongst its partners in the EU. Following the announcement of the fiscal consolidation measures the franc initially strengthened and the central bank was able to reduce short-term interest rates slightly for the first time since July 1994. There is still a chance that France will be able to meet the criteria for joining European Economic and Monetary Union if the country proves able to counter the current trend towards a weakening of economic growth in 1996 and 1997. Although the recent wave of strikes indicates that the cutbacks have gone as far as was possible, fiscal policy is not in a position to stimulate demand if it is to avoid undermining the aim of meeting the 3% criterion at the appointed time. This makes a perceptible cut in real interest rates all the more necessary. This in turn requires a substantial stimulus by the monetary authorities, and this is only conceivable within the framework of concerted action at European level.