President Nicolas Sarkozy ordered his finance and budget ministers to come up with new steps to prune the public deficit on Wednesday, after a U.S. debt downgrade threw the spotlight on France's strained finances.
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Sarkozy also urged all political parties to give their backing to a proposal for a constitutional rule to limit future deficits which is set to be defeated in one blow if put to a special two-chamber parliamentary vote.
The president summoned his top ministers and central bank chief to emergency talks on Wednesday, interrupting the summer recess, after a punishing market rout that has underscored growing anxiety over governments' debt burdens.
Finance Minister Francois Barion and Budget Minister Valerie Pecresse were asked to outline suggestions to speed up deficit cuts at an Aug. 17 meeting with Sarkozy and Prime Minister Francois Fillon. A further meeting on Aug. 24 would formally agree on the steps, Sarkozy's office said.
"Whatever the impact of global uncertainty, of the announcement of the U.S. downgrade by S&P, the nervousness of markets, regardless of any of these external parameters we will take the necessary measures to reach our (deficit) targets," Baroin told reporters after the meeting.
France -- the most indebted of the euro zone's six AAA-rated states -- has vowed to cut its deficit to 4.6 percent of GDP next year and 3 percent in 2013, down from 7.1 percent in 2010 and an expected 5.7 percent this year.
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Yet public debt is way above the euro zone's recommended 60 percent of GDP at around 85 percent this year and the market turmoil deals a blow to hopes investment will pick up as the country braces for bleak second-quarter growth data on Friday.
France's CAC-40 stock index plummetted as much as 23 percent in a two-week market sell-off which intensified after Standard & Poor's stripped the United States of its triple-A rating on Friday.
The cost of insuring French government debt also spiked to new peaks this week, credit default swap prices showed.
S&P has said that as things stand France's outlook is stable but markets remain concerned that French banks are among the most exposed to a worsening of Europe's government debt crisis.
DEBT BRAKE ELUSIVE
Sarkozy was at the centre of a July 21 agreement among euro zone leaders to give the EFSF rescue fund the power to buy sovereign bonds on the secondary market and aid Greece with a new multi-billion euro bailout.
With the main opposition Socialist Party on board, parliament is expected to approve the resulting adjustments to the 2011 budget at special sessions on September 6 and 7.
Left-wing lawmakers, however, have vowed to block Sarkozy's proposal for a constitutional "debt brake" if it goes to a two-chamber vote in coming weeks, part of the jockeying for political position ahead of a 2012 presidential election.
The Socialists say they support all of the cutbacks being proposed but do not want to tamper with the constitution and say the reform would have limited impact as numerical deficit ceilings would be set by particular governments anyway.
Markets, however, see the constitutional move as symbolic of France's commitment to fiscal prudence and some analysts fear that rating agencies could use a failure of the initiative to put France on negative outlook.
Sarkozy -- determined to convince the world France deserves to hold on to its Triple-A badge -- has closely followed the market meltdown of the last few days from his vacation on the French Mediterranean, his office has said, and spoken to other European leaders and U.S. President Barack Obama by telephone.
S&P has reaffirmed France's AAA rating and stable outlook at and says it has no immediate concerns over its public finances.
Yet prominent left-wing economist Jacques Attali noted S&P's report on the United States picked out France as the only Triple-A rated country facing a similar debt ratio in 2015.
"We are being explicitly picked out. We must therefore do everything to reduce our debt," he told the daily Le Monde.
Government officials indicated earlier in the week they would push to squeeze several billion euros in extra revenues from the 2012 budget, which will be debated from September.
Sarkozy has been advised to secure the extra billions by closing fiscal loopholes or slapping new taxes on the super-rich to convince investors France will not be blown off course.
Finance Minister Francois Baroin has said the 2012 budget bill will need to find more than 3 billion euros in new revenue. The Senate finance committee is eyeing between 5 and 10 billion.
"If we have to make more efforts to reach the 4.6 percent, we will make more effort," Pecresse said earlier this week, as the U.S. downgrade sent tremors through France.
Second-quarter growth is set to come in at a dismal 0.2 percent, far below a 0.9 percent spurt in the first quarter, underlining fears the French recovering is running out of steam.