France to offset Iran crisis cost with spending freeze

The French government will fully offset the economic fallout from the Iran crisis by freezing some spending, it said on Tuesday, as it presented a new round of support measures.

A surge in energy prices and higher bond yields since the Iran war began are expected to cost the government between 4 billion euros ($4.7 billion) and 6 billion euros, with increased borrowing costs accounting for 3.6 billion euros, Finance Minister Roland Lescure said.

"In the face of these 6 billion euros we expect the crisis to cost, we are putting 6 billion euros in spending on hold," budget minister David Amiel told reporters after a meeting with lawmakers.

Prime Minister Sebastien Lecornu's government has pledged to neutralise the budgetary impact of measures aimed at helping households cope with the energy price shock triggered by the conflict, but faces growing pressure to offer more aid.

Lecornu said emergency fuel subsidies for the fishing and farming sectors would be increased and help would be available for small construction firms and possibly also for taxi drivers.

Plans are being drawn up to support an additional 3 million low-income people who use their vehicles for work.

"The philosophy behind what we are trying to achieve is to ensure that our growth remains robust and that certain sectors which are particularly dependent on hydrocarbons are not adversely affected," Lecornu told journalists.

France, which already has one of the largest budget deficits in the euro zone, can afford only support measures that are strictly targeted at those most in need, Lescure has said.

The government is meanwhile facing pressure from the far right to introduce a costly cut in the 20% value‑added tax on fuel, while the hard left has called for energy prices to be capped.

($1 = 0.8502 euros)

-Leigh Thomas/Reuters