France unveils austerity plan and cuts growth

PARIS (AP) — President Nicolas Sarkozy’s government has bowed to economic reality, admitting its growth forecasts were overly rosy and announcing an euro11 billion ($16 billion) austerity package in a bid to ensure that France doesn’t miss a vital pledge to cut its deficit.

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, as well as its role bailing out weaker European partners like Greece.

Prime Minister Francois Fillon said the austerity package is vital for France to keep its pledge on deficit reduction and maintain its triple A credit rating.

France has not managed to balance its budget in three decades, and Sarkozy has staked his credibility on hitting a series of deficit targets over the next three years.

Fillon blamed the international economic slowdown for France’s failure to achieve the 2 percent growth this year that Finance Minister Francois Baroin said only last week was still within reach.

The country now expects to grow only 1.75 percent this year, and the same amount in 2012. The government had built its 2012 budget, a critical election year for Sarkozy, on a target of 2.25 percent growth.

Sarkozy’s austerity package consists largely of closing tax loopholes and scraping deductions for the country’s largest companies. But it also includes a euro200 million tax hike on the country’s wealthiest taxpayers via a 3 percent “exceptional contribution” on incomes over euro500,000.