France heads for 'slowdown'

French finance minister Francois Baroin has said that France was headed for a slowdown not a recession and that the government is doing everything to preserve its AAA credit rating.

Mr Baroin ruled out further austerity measures, however.

France came under heavy fire on global debt markets today, pushing the premium on its borrowing costs over benchmark German debt to euro era highs, amid fears that the troubled currency region's second largest economy was being sucked into a debt spiral as its economy slowed.

"We are expecting a slowdown, but not a recession," Mr Baroin told LCI news channel. "We are doing everything to maintain our credit rating, to borrow more cheaply."

Mr Baroin said a revised 2012 budget unveiled this month would allow the government to cope with a slowdown next year without resorting to further austerity measures, even if growth came in at 0.5 per cent - half the official forecast.

"There will not be a third austerity plan," the minister said.

With anxiety mounting in markets, the prime minister Francois Fillon announced a second austerity drive on November 7th comprising €65 billion of tax hikes and budget cuts by 2016, including €18.6 billion this year and next.

Two days later a member of President Nicolas Sarkozy's conservative UMP party said a further, tougher austerity plan would be announced after next April's presidential election.

Mr Baroin blamed Socialist presidential candidate Francois Hollande, the frontrunner for the election, for stoking market fears about France's creditworthiness.

Credit ratings agency Moody's has said that it is evaluating the outlook on France's AAA. In that context, an error by Standard & Poor's last week mistakenly announcing the downgrade of France sent shockwaves through markets.

Many investors are already factoring in France losing its AAA rating, which could complicate fund raising for the euro zone's EFSF bailout fund, whose own AAA rating relies on those of six top-grade countries underpinning it.

Budget minister Valerie Pecresse told Europe 1 radio today that France would start paring back expenditure in 2011, a year earlier than planned.

Mr Baroin said a commitment to cut France's deficit from an estimated 5.7 per cent of GDP this year to an EU target of 3 per cent of GDP by 2013 was sacrosanct.

Reuters