In an effort to show how serious he is about doing what it takes to stay out of trouble with the rating agencies and the bond market, French president Nicolas Sarkozy has called his finance ministers back from vacation and given them a one week deadline to come up with new ways to cut France’s debt.
With concerns growing that France may be the next country hit by the credit contagion, Sarkozy is trying to get in front of the curve and cut the country’s budget deficit.
A final decision is expected to be included in the 2012 budget, which will be presented to Sarkozy on August 24.
The FT reports that in a statement after the two hour meeting in the Elysee Palace in Paris, Mr Sarkozy said France's pledge to reduce the budget deficit from last year's 7.1 percent to 3 percent by 2013 "will be kept whatever the evolution of the economic situation".
Concerns about growth in the French economy are also emerging as Unicredit said Wednesday that it’s forecasted growth rate of +0.2% for the second quarter could be at risk. Official figures, which look for 2% growth for 2011 will be published on Friday.
Sarkozy appears to be winning the credit contagion so far as yields for French debt are actually lower than when the most recent bout of market weakness began.
However, with the markets remaining fixated on whether or not France will join Italy and Spain, this is an area to watch closely.
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