4 Min Read
By Alexandria Sage
PARIS, Nov 6 (Reuters) - France will do all it can to reach its revised target of 1 percent growth for next year, Finance Minister Francois Baroin said on Sunday, a day before the government is due to announce up to 8 billion euros in new budget tightening for 2012.
Last week, France lowered its growth projections for next year to 1 percent from 1.7 percent -- raising the need for further belt-tightening measures by the centre-right government of President Nicolas Sarkozy.
"We are adapting to this economic slowdown," Baroin told RTL radio on Sunday, defending the government's handling of a euro zone crisis that has rattled markets and put France's own triple A credit rating at risk.
Asked if France would meet its new 1 percent growth target for 2012, Baroin said the government will "do everything to reach this growth objective", but he also sounded a cautious note, given the wider European environment.
"Caution is required in France, it's required in Germany which herself corrected growth forecasts in the same proportions as we did with the same estimates as ours," said Baroin.
On Monday, Prime Minister Francois Fillon is expected to announce an extra 6 to 8 billion euros ($8-$11 bln) in cuts and tax hikes to keep deficit reduction goals on track and safeguard France's triple-A credit rating despite the lower growth.
Government ministers spent the weekend preparing the public for the new cuts, which are above and beyond the 11 billion euros of cuts already laid out in August for the 2012 budget.
The government wants to reduce its budget gap from 5.7 percent of GDP this year to 4.5 percent in 2012, and eventually to the EU limit of 3 percent in 2013.
"The 2012 budget will be one of the most rigorous budgets that France has seen since 1945," Fillon said on Saturday, adding France's "hour of truth has arrived."
Fillon is expected to announce the new measures in a press conference scheduled for 11:00 am GMT on Monday.
The belt-tightening comes at a politically difficult time for Sarkozy, whose popularity ratings are low six months before a presidential election in which he is widely expected to seek a second term.
Sarkozy has made deficit reduction a key goal of his presidency and has sought to cast himself as a responsible steward of France amid the turmoil of the seemingly unending euro zone crisis.
Last month, Moody's Investors Service warned it was scrutinising the outlook on France's credit rating in light of slower economic growth and costly commitments to euro zone bailouts --- ramping up the pressure on Sarkozy to keep spending in check.
Baroin said the savings would come half from cost-cutting, and half from additional taxes, with ministers stressing that the cuts would be equitable.
"Everyone will contribute according to their own capacity," Budget minister Valerie Pecresse told M6 television.
Le Journal du Dimanche newspaper said on Sunday the cuts could come from raising France's VAT rates in certain sectors from 5.5 percent to 7.0 percent, while slapping a new corporate tax on businesses with annual revenues over 500 million euros.
Ministers sought to fend off suggestions that the extra spending cuts pointed to a slipshod performance by the government in its first 2012 budget.
Francois Hollande, Sarkozy's Socialist challenger for the presidency, said on Saturday a potential hike in the VAT rate would be "the proof of inconstancy, political incoherence."
Sarkozy's government lowered VAT rates in 2009.
On Sunday, Foreign Minister Alain Juppe said France had been forced to adapt to changing conditions as the euro zone crisis worsened in Europe. France's earlier budget was "genuine," said Juppe. "We are not doing makeshift repairs or patchwork."