French prime minister Francois Fillon today announced plans for further budget savings of €7 billion in 2012 and €11.6 billion in 2013 as the euro zone's second-biggest economy seeks to protect its top-notch credit rating and avoid the financial market pressure engulfing Italy.
He said the goal was to produce a further €65 billion of savings in all by 2016 in order to live up to France's goals for reducing the public deficit gradually to zero.
The second package of emergency budget adjustments in three months included accelerating the shift in retirement age to 62 from 60 in 2017, a year earlier than planned.
It also included a temporary 5 per cent rise in corporate tax for firms with a turnover of more than €250 million, and an increase in the discounted rate of VAT sales tax to 7 from 5.5 per cent with the exception of some items.
President Nicolas Sarkozy's centre-right government says extra savings are urgently needed to keep France's finances from going off the rails, since it cut its growth forecast for next year to 1 per cent from 1.75 per cent last week.
Like other European countries, France is struggling to keep its public finances under control and contain its debt without triggering a sharp drop in consumer spending, a cornerstone of the French economy, or sparking protests of the scale seen in other countries such as Greece.
Ratings agencies have been hinting they could cut France's prized top credit rating because of its slowing growth and its potential liability for the cost of bailouts in the European debt crisis.
Without ever mentioning the word "austerity," ministers from Mr Sarkozy's centre-right government spent the weekend defending the need for fiscal vigilance amid fears of mounting debts in Western states.
France is trying to reduce its budget gap from 5.7 per cent of GDP this year to 4.5 per cent next year. It hopes to reach an EU-mandated limit of 3 per cent of GDP by 2013.
Preserving France's coveted AAA credit rating through deficit reduction plans has been a key goal of Mr Sarkozy, who in recent months has cast himself as a responsible steward amid the turmoil of the seemingly unending euro zone crisis.
Reuters
