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France to face 'toughest austerity measures since 1945'

France to face 'toughest austerity measures since 1945'
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French Prime Minister Francois Fillon has announced new austerity measures aimed at reducing the country’s deficit. The step has also been taken to protect and strengthen France’s AAA credit rating.

At a news conference ahead of the announcement, the prime minister warned that they would be the most stringent measures introduced since 1945.

“The legal requirement age for retirement will be raised to 62 in 2017 instead of 2018. VAT will be increased from 5.5 percent to 7.0 percent except for basic needs products, including food. Corporation tax will be put up by 5.0 percent for companies with a turnover of more than 250 million euros,” he said.

Read also:More pain from Paris to protect credit rating

This is a gamble for President Nicolas Sarkozy six months before an election.

He is trying to reassure financial markets and ratings agencies without costing him his re-election chances with French voters.

Securing a rise in the retirement age to 62 from 60 was a key political victory last year – but a highly unpopular move – for Sarkozy, who said it was necessary to keep France’s ballooning pension deficit in check.

The measures come on top of 12 billion euros in savings announced just three months ago.

France is trying to reduce its budget gap from 5.7 percent of GDP this year to 4.5 percent next year. It hopes to reach an EU-mandated limit of 3 percent of GDP by 2013.

Preserving France’s coveted AAA credit rating through deficit reduction plans has been a key goal of Sarkozy, who in recent months has cast himself as a responsible steward amid the turmoil of the seemingly unending euro zone crisis.