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Nicolas Sarkozy, French president, in a French television interview, Paris, Oct 27, 2011.
Nicolas Sarkozy, French president, said in a
series of interviews on French television on Thursday evening, that France's
economic growth forecast for 2012 has been cut to 1%. He also said the admission
of Greece to the euro was a mistake. France last had an annual budget surplus in
1974.
With just six months to go to a presidential
election, the president announced that in light of the poorer economic outlook,
new austerity measures will be necessary if France is to meet deficit targets
and hold on to its treasured triple-A credit rating.
Sarkozy said the government will announce a new
austerity plan of between €6 and €8bn after next week's G-20 summit of the
leaders of the world's main developed and emerging economies in Cannes. He said
the 2012 growth forecast was cut to 1% from 1.75% previously.
"We're sticking to our growth outlook
for this year," Sarkozy said in an interview on French
television. "For next year, we had forecast growth of
1.75%, but everyone knows that with the economic crisis there is little chance
we can hit the target. We have agreed to revise down our forecast and to take it
to the same level as our German friends, at 1%, for next year."
The government is to stick to the plan to cut the
budget deficit to 3% of GDP in 2013 but despite the austerity, public debt is
expected to peak at more than 87% of GDP in 2010.
France's last annual budget surplus
was in 1974
while the national debt to GDP ratio rose from 22% in 1975 to 82% in 2010.
The French president said he would work
with Angela Merkel, German chancellor, to bring greater convergence between the
French and German economies in sectors such as harmonising corporate and VAT tax
rates to make the two countries the “heavyweight
champion at the heart of Europe.”
Sarkozy said he was confident that Greece will
emerge from its debt crisis but in his view it was s mistake in the first place
to allow the country to join the euro system.
Earlier on Thursday, Eurozone leaders had forced
banks to agree to take a 'voluntary' haircut of 50% on Greek debt. Measures to
raise capital at the big banks and a plan to add firepower to the €440bn
European Financial Stability (EFSF) fund to bring it potential value up to €1trn
were also announced.
The EFSF said on Thursday that Klaus Regling, the
chief executive, would travel to Beijing on Friday to discuss how China might
contribute to the fund.
"If the Chinese, who control 60% of the
world's currency reserves, decide to buy the euro instead of into the dollar,
why should we refuse," Sarkozy said.
"Our own independence will not be put at risk."
Sarkozy said it was "essential" that the
yuan joined the global foreign exchange system.
On French banks, Sarkozy said the government will
closely monitor French banks to make sure they withhold their dividends and cut
bonuses to boost their capital ratios
France's big four banks need to raise a total
capital shortfall of €8.8bn from a total required by Eurozone banks of
€106bn, according to the European Banking Authority. The French banks said they
would easily be able raise funds from future profits and by following through on
previously announced asset sales.
Charles Dallara: Europe Gets a Debt Deal- - the head of the International Institute of Finance, the big banks' lobby group, who was at the Eurozone summit in Brussels:
Eurozone Shows Recovery Signs: David Carbon, MD, Economics & Currencies, DBS Bank Group Research, shares the overall optimistic sentiment surrounding the hopes for recovery but says EU is only half way there:
