UPDATE 1-France talks tough on deficit cuts

* Lagarde says will hit 2011 fiscal targets come what may

* Budget Min sees 2 bln eur in extra revenue from new jobs

* Govt GDP forecasts still too optimistic – economist

* France still ‘paying lip service to austerity’ -economist

(Recasts, adds economist, background)

By Daniel Flynn

PARIS, Aug 23 (BestGrowthStock) – France is committed to cutting its
budget deficit and state funds will be boosted by a jobs markets
upturn, ministers said, as the government went on the offensive
to persuade sceptical investors it will meet fiscal targets.
An emergency ministerial meeting on Friday — convened four
days after ratings agency Moody’s warned France was inching
closer to losing its AAA rating — ended with a cut to the
country’s 2011 growth forecast to 2 percent from 2.5 percent and
a pledge to slash tax breaks. [ID:nN17130318]

Finance Minister Christine Lagarde told Monday’s Financial
Times that France was determined to do “whatever it takes” to
cut the deficit in 2011, and that markets were not giving the
government credit for its reforms, [ID:nLDE67L0CF]

Meanwhile Budget Minister Francois Baroin, who must finalise
the government’s 2011 spending plan before the end of September,
chose French daily Le Figaro to predict the creation of 60,000
jobs this year would provide the state with 2 billion euros in
extra welfare contributions. [ID:nLDE67M051]

Under the deficit projections, the GDP cut will require some
3.5 billion euros in additional savings next year to compensate
for lower revenues.

But economists said even more austerity might be needed to
be done as the new growth forecast, which brought the government
closer to the market consensus, still appeared too high.

“They are being a bit optimistic … France has quite a
track record of pencilling in too high growth in its budgets,”
said Joost Beaumont, economist at ABN Amro, who predicts 1.6
percent expansion for next year.


President Nicolas Sarkozy’s government was already seeking
40 billion euros in savings to reduce the budget gap to 6
percent of GDP in 2011 from an estimated 8 percent this year
under a pledge to comply with an EU ceiling of 3 percent by

“Everything must be directed towards this aim: we are
obliged to return as quickly as possible to the pre-crisis
levels of deficit,” Baroin told Le Figaro.

Friday’s meeting agreed to slash 10 billion euros in tax
exemptions to help meet next year’s goal, and Baroin said all
but 2 billion euros of this had already been found.

Solid second-quarter GDP growth of 0.6 percent put France’s
1.9 trillion euro economy, which makes up over a fifth of the
euro zone, on track to meet a government target of 1.4 percent
growth this year.

But growth rates stubbornly lag those of neighbour and rival
Germany, and economists said robust consumer spending, which
underpinned France’s second-quarter expansion, was expected to
tail off later this year as fiscal stimulus measures expire.

Baroin said strong government action on the deficit would
help to strengthen consumer spending by alleviating ordinary
French people’s concern over the debt and deficit levels.

“It is an essential issue for our economic growth,” he said.

The government has already announced a freeze on civil
servants’ wages and committed to replacing only half the central
government employees who retire over the next three years.


The 2011 budget is just one of a number of headaches for
Sarkozy, who also faces national protests at a security
crackdown and plans to overhaul the loss-making pensions system.

Some analysts have suggested that presidential elections in
2012 could tempt Sarkozy, whose popularity is sagging near
record lows, to avoid cuts to high levels of public services.

“France has a very poor track record in sticking to its
deficit commitments, and if you look at the details of how they
plan to do it, it is still not clear,” Beaumont said, noting
that France’s cyclically-adjusted deficit was amongst the most
stubbornly high in Europe.

“They have a lot of work to do and so far they are the only
(European) country just paying lip service to austerity.”

(Additional reporting by Sophie Taylor; Editing Brian Love,
John Stonestreet)

UPDATE 1-France talks tough on deficit cuts