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More pain from Paris to protect credit rating

More pain from Paris to protect credit rating
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With his latest budget savings, unveiled on Monday, President Nicolas Sarkozy is imposing further pain on his citizens to protect France’s credit rating and slash its deficit.

It is a risk, coming just six months before an election, but necessary with France’s growth forecast for next year recently cut from 1.75 percent to just 1.0 percent.

Sarkozy’s centre-right government says to keep French finances from going off the rails, everyone must contribute — from the youngest to the oldest — with further spending cuts and tax hikes urgently needed to the tune of 18 billion euros for 2012 and 2013.

Securing a rise in the retirement age was a highly unpopular move — but the finance ministry said it was necessary to keep France’s ballooning pension deficit in check.

The hope is the country’s overall deficit will fall to 5.7 percent of GDP this year, then to 4.5 percent next year and reach an EU-mandated limit of 3.0 percent of GDP by 2013.

On the streets, the mood is gloomy, in Paris one man said: “Right now it’s rather hard for everyone. I think the crisis is hitting the poor. And regarding the retirement age going up, that’s difficult. People don’t have any money, and with the social security contributions rising it’s going to get even more difficult.”

The problem for Paris is that the ratings agencies have been hinting they could cut France’s prized triple-A credit rating.

They point to the slowing growth and France’s potential liability for the cost of bailouts in the European debt crisis.

Preserving France’s credit rating through deficit reduction plans remains Sarkozy’s key goal.

But economists and opposition politicians said the government’s outlook was still too optimistic and the latest measures might not be enough.