Sarkozy holds pre-Budget meeting to avoid downgrade

FRENCH President Nicholas Sarkozy will today attend an emergency meeting with finance minister Christine Lagarde and Prime Minister Francois Fillon to discuss the state of the French economy.

The meeting comes ahead of the September Budget and shortly after Moody’s reaffirmed France’s Aaa rating but said that its “distance to downgrade” was shorter than it had been.

The government has said it will lay out plans to cut the deficit from 8.2 per cent to six per cent of GDP, partly through raising the retirement age from 60 to 62 and delaying the onset of full benefits two years to age 67.

In the context of what Moody’s calls “brittle market confidence”, sending a strong and credible signal on deficit reduction will be vital.

But economists are sceptical about Sarkozy’s ability to deliver. Dismissing today’s meeting as “PR exercise”, Lombard Street Research’s Gabriel Stein adds: “It’s politically fraught and Sarkozy has not shown he’s prepared to move strongly with unpopular measures. He’s a wimp.”

Like the rest of Europe, France has to choose between stimulating the economy and reducing spending. It is widely expected to experience a slowdown in the second half of 2010 and into 2011, resulting in a consensus growth forecast of 1.4 per cent for 2010.