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France

France joins other EU nations announcing austerity plan

Text by News Wires

Latest update : 2010-06-13

French Prime Minister Francois Fillon (photo) has announced an austerity plan that will slash state spending by 45 billion euros. The three-year plan aims at bringing public deficit back down to the EU's limit of three percent of GDP by 2013.

AFP - France joined other European nations in announcing on Saturday an austerity plan that would involve 45 billion euros (54.5 billion dollars) in spending cuts over the next three years.

Prime Minister Francois Fillon said the cuts were aimed at bringing France's public deficit back down to the European Union's limit of three percent of gross domestic product by 2013.

"We've made a commitment to bring down our deficit from eight to three percent by 2013 and we will concentrate all of our efforts on it," Fillon said at a meeting of new members of his UMP party.

France's first announcement of austerity measures came as bond markets have mounted pressure on eurozone nations to get their public finances under control in the wake of the devastating Greek debt crisis.

Fillon said the government would cut the public deficit by 100 billion euros, with half coming from slashing spending and half from increasing revenues.

The prime minister broadly outlined where the savings would come from, including 45 billion euros in spending cuts and five billion euros from closing tax loopholes.

The centre-right premier is also counting on a rebound in the economy to bring in an additional 35 billion euros.

"As and when growth returns, revenues will grow once again," said Fillon.

The remaining 15 billion euros will come from halting temporary measures to boost the economy, he added.

Up to now, Paris has not adopted an outright austerity plan, only imposing a spending freeze. France has prided itself on supporting the economy through the worst of the global slump despite the cost of an expanding budget deficit.

However, Germany's quick readiness to wield the budget knife has made Europe's economic powerhouse even more attractive in the bond market, putting more heat on France to do likewise.

After a record deficit of 8.0 percent of GDP this year, Fillon says the austerity measures aim to reduce the deficit to 6.0 percent by 2011, 4.6 percent in 2012 and 3.0 percent in 2013.

The markets have wanted to see action and have been fretting over what has been seen as a lack of political will in Paris to take the stiff medicine adopted by Germany, a problem investors fear could get worse in the run-up to the 2012 presidential elections.

France nevertheless still enjoys the support of international investors and its top credit rating does not seem in any immediate danger, analysts say.

The Bank of France this week said that the French economy would grow by 0.5 percent in the second quarter of the year, even as a first estimate from the official statistics institute for the first quarter showed that growth was only 0.1 percent.

The government is counting on the economy growing by 1.4 percent for the whole of this year, having experienced the severest recession in 2009 since World War II with a contraction of 2.5 percent.

Sources close to Economy Minister Christine Lagarde said that the target for 2010, which requires average growth of 0.4 percent in each of the last three quarters of the year, had not been undermined by the weak growth figure for the first quarter.

The government's forecast is in line with an estimate from the International Monetary Fund that the French economy would grow by 1.5 percent this year and by the European Commission foreseeing growth of 1.3 percent.

Date created : 2010-06-13

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