France Jospin In A Corner Over Renault, Finances

Frances left-wing government has its back against the wall less than a month after it came to power on pledges to curb unemployment and steer clear of the economic austerity imposed by its centre-right predecessor.

Renaults final decision this weekend to close a Belgian car plant employing 3,000 people has pitched it against trade unions which were quick to point out that Socialist Prime Minister Lionel Jospin had pledged to fight record unemployment.

The decision followed revelations on the state of French public finances which raise questions about its ability to pass the test for joining a single European currency without resorting to further cutbacks eschewed by Jospin in his election campaign.

A government source said on Friday the public deficit was heading for more than 3.4 or 3.5 percent of gross domestic product this year, which could complicate negotiations with Frances European partners on the launch of economic and monetary union.

The decision by Renault to close down the plant at Vilvoorde confronts Jospin with an even uglier dilemma than the one which faced the former centre-right government when Renault first announced the closure plan in February.

Can a government which has made jobs its absolute priority emerge untarnished from a high-profile closure by a firm which is 46 percent owned by the state? Can it say its hands are tied? Immediate union reaction suggests that will be hard. Jospin has not kept his promises, the Communist-led CGT union said.

Junior Industry Minister Christian Pierret said the fate of the Renault plant was sealed under the conservative government.

He said Jospin had kept his word to order an independent report

on the plant and win better redundancy conditions for the staff.

The CFDT union at Renault said the report, which concluded

there was no alternative to the closure, had amounted to an

alibi for the public authorities.

Jospins team went straight to work after election victory

on June 1, getting its EU partners to agree a pact in Amsterdam

in mid-June on jobs and growth and portrayed the deal as a first

in its drive to give European union a more social dimension.

And Jospin said in his policy speech to parliament on June

19 that he would review company lay-off legislation in the wake

of the Renault saga.

Ex-Socialist party leader Henri Emmanuelli said this weekend

Renaults move was very bad news, for the Vilvoorde employees,

but also for all those who expect a different vision and action

from the new (Socialist-led) coalition.

It also appears that Jospin will have a tough time balancing

his promise to boost economic growth by increasing consumer

spending power, while containing the public deficit reasonably

close to three percent of GDP in line with monetary union

requirements.

He pledged no more austerity and not to pursue cuts in civil service staff, but has told his ministers in budget preparation letters that they must keep staff at the same level in 1998 as in 1997 and limit running costs to the rate of inflation.

Ministers are being told to find room for manoeuvre through a reorganisation of existing spending credits and commitments.

The government source said on Friday first signs showed Frances public deficit could come in a little beyond 3.4 or 3.5 percent. The Maastricht treaty did not prescribe a deficit of precisely three percent and what counted was the trend across 1997 and 1998, he said.

As far as the autumn budget was concerned, France had a narrow but manageable margin for manoeuvre, he said.