French finance minister defends austerity budget

AP - France’s finance minister insisted Tuesday that his country isn’t at risk of sliding back into recession, as he defended an austerity budget seen as important to stabilizing the euro.

Amid growing concerns over the global economic outlook, the French parliament also starts debating whether to approve France’s contribution to a new bailout plan for Greece.

In order to pay for the new Greece aid and possible future rescues, the French government has proposed €11 billion ($16 billion) in spending cuts and tax increases in a budget amendment. The plan is meant to pare back the state’s debts and ensure that France can afford to bail out weaker eurozone countries.

The plan is also seen as important to ensuring that France - the world’s fifth-biggest economy and a driver of the eurozone - maintains its triple-A credit rating.

But the government has backed down on some divisive tax increases and some critics say the plan isn’t bold enough.

Even with the government’s concessions, the opposition Socialists said Tuesday that they planned to abstain from the vote. Still, the measures are almost certain to pass since President Nicolas Sarkozy’s UMP party controls both the lower and upper houses of parliament.

“We think the (bailout) funds will arrive too late. In addition to that, it is very weak in relation to the huge difficulties that some countries like Greece are going through,” said Jean Marc Ayrault, leader of the Socialist lawmakers, explaining the Socialists’ abstention.

Finance Minister Francois Baroin defended the austerity plan, saying that further cuts could lead to a “slippery slope” toward recession.

Speaking on Europe-1 radio Tuesday, he dismissed concerns that France is already at risk of recession, arguing that the government is promoting growth as well as saving money.

The government unveiled the package of spending cuts and tax increases two weeks after France came under fire by investors who feared the country’s high debt and deficit levels.

Sarkozy’s government last month admitted its growth forecasts were overly rosy.

The country now expects to grow only 1.75 percent this year instead of 2 percent, and by the same amount in 2012.

The austerity package consists largely of closing tax loopholes and scrapping deductions for the country’s largest companies, as well as a tax hike on the country’s wealthiest taxpayers. It also includes higher taxes on cigarettes, hard liquor and new taxes on sugary soft drinks.

France has promised European partners and the holders of its €1.6 trillion ($2.3 trillion) in debt to cut its deficit to 5.7 percent of national income this year from 7.1 percent in 2010.

The lower house of parliament votes on the package Wednesday, and the upper house follows Thursday.