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.
  

