October 27, 2011 / 8:16 PM / 8 years ago

UPDATE 2-France's Sarkozy flags more budget cuts in 2012

* Sarkozy says more budget savings needed due lower growth

* Takes stab at presidential challenger Hollande

* Says French banks solid but bonuses must be tamed

By Catherine Bremer and Brian Love

PARIS, Oct 27 (Reuters) - President Nicolas Sarkozy told French households on Thursday they will have to weather a further 6-8 billion euros in budget cuts to compensate for faltering economic growth that the government now sees at 1 percent next year.

In a TV interview aimed at preparing already disgruntled voters for fresh belt-tightening measures six months before elections and explaining the causes of the economic turmoil hitting the country, Sarkozy said France’s sole focus must be to bring down its debt and deficit.

“The problem is not the credit rating agencies. It’s that we spend too much. That we need to work more,” said Sarkozy, who is battling to safeguard France’s prized AAA-rating as analysts fret about the country’s ability to meet its debt and deficit-cutting targets.

“Rather than criticise the agencies, let’s reduce our deficit and repay our debt,” Sarkozy said, noting France is paying annual interest of 49 billion euros on its public debt.

Sarkozy, who is trailing Socialist rival Francois Hollande in opinion polls for the April presidential election, said his conservative government was cutting its 2012 growth outlook from 1.75 percent to bring it in line with analyst estimates.

The resulting drop in tax revenues means the government will now seek a further 6-8 billion euros in budget savings next year, and will take decisions in 10 days’ time on where to make those savings, he said.

He said he ruled out any increase to generalised value-added sales tax rates in the new measures, which will come on top of 11 billion euros of cuts already in the 2012 budget

The government’s economic growth forecast of 1.75 percent for this year remained achievable, he said.

Sarkozy’s TV interview, one of just a handful he has given since coming to power in 2007, set the tone for an election campaign to be dominated by the economy as France struggles to return to healthy growth under his centre-right rule.

In a new blow to Sarkozy after months of lacklustre economic indicators, data on Wednesday showed French unemployment hit an 11-year high in September.

While the French feel a greater sense of solidarity with sickly euro peripherals like Greece, and are not up in arms like Germans over the cost to taxpayers of the euro crisis, Sarkozy was keen to explain the reasoning behind the euro zone crisis plan agreed in Brussels late on Wednesday.

He told TV channels TF1 and France 2 that without a credible plan to shore up Greece, the entire euro zone would have been at risk and the world economy affected.

“If Greece had gone bankrupt, there would have been a domino effect that would have affected everybody. The entire euro zone risked being taken down,” Sarkozy said.

He said it had been a mistake to let Greece join the euro single currency when it did because its economy was not ready to form a monetary union with others in the club.

“Neither Mme Merkel nor myself were in office when the decision was taken to let Greece join the euro. And let’s say it straight, it was an error, because Greece entered on the basis of false figures and it wasn’t ready, its economy wasn’t ready,” Sarkozy said.

As for the financial industry, Sarkozy said that France’s banks were perhaps the most solid in the region.

Keen to respond to voter irritation, he also said the head of France’s central bank would see to it that excessive trader and executive bonuses were brought to an end before next April as part of their contribution to greater solidity.

“There is no reason why the taxpayer should be mobilised to pay for the errors of the banks,” he added.


Sarkozy last appeared on TV in February, when he was grilled by members of the public on a slew of issues.

Sarkozy will not start formally campaigning until February, but Jean-Francois Cope, an aide who is presiding over the ruling UMP party’s 2012 plans until then, said the euro zone debt crisis and global economics would be crucial themes.

“More than ever before, the global economy will be a subject for this campaign,” Cope said in a briefing for foreign correspondents.

Mainstream politicians were rattled this month when leftwinger Arnaud Montebourg stole the limelight in the Socialist primary with his stand against globalisation and bank profligacy. Far-right leader Marine Le Pen is also seen winning some 10 percent of the vote next April with her push for more protectionism and for France to leave the euro.

Hollande’s strong lead over Sarkozy in polls is bound to narrow as the election approaches, but a majority of people consistently tell pollsters they want a change of government.

He said the Socialist-inspired shift to a 35-hour week in France had been “madness” and damaging for competitiveness, and took a stab at Hollande’s proposal that 60,000 state teaching posts be created, asking where the money would be found when everyone agreed debt had to be controlled.

The French are fed up with three years of economic gloom, and many resent Sarkozy’s brash personal style and the fact he made tax revisions early in his term that favoured the rich.

Sarkozy suffered a blow when the left won control of the Senate in September, for the first time in half a century, and his party is furious at the weeks of primetime media coverage the left garnered with its primary vote.

Even his successful leadership on the Libyan crisis, and his careful silence over the birth of his first child with his wife Carla Bruni have failed to lift his popularity ratings, which are mired just above 30 percent.

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