–Adds Comments on Deficit Cuts, Pension Reform

PARIS (MNI) – Budget cuts to be implemented by France’s government
to cut the public deficit will not harm economic growth, contrary to the
warnings of many observers, Prime Minister Francois Fillon said Friday.

The government deficit will be slashed by E40 billion next year in
order to lower the overall public deficit from 8% to 6%, Fillon said at
a press conference.

The unwinding of stimulus measures and the upturn in revenues with
the economic recovery should contribute E25 billion, he said. The
upcoming reform of the pension system will also help.

In addition, Fillon signaled that the government was ready to close
more tax loopholes, boosting the revenue savings from E5 billion to as
much as E8.5 billion, if needed.

In a context of global economic instability and “speculative
attacks” on Eurozone governments, “what is at stake is the financial
credibility of France,” the prime minister stressed. “It’s the only way
to avoid a rise in [borrowing] rates.”

Fillon acknowledged the concerns being raised by some that the cuts
in public spending could “brake growth.”

“I say it is completely the opposite,” he said. He noted that
deficits are a “source of concern” for the future and that if there is
not swift and firm action to address them and restore confidence, it
could force choices later on that would be “clearly against growth and
against development” of the French economy and employment.

“The effort being made on public spending is categorically
imperative; it is the only way to avoid tax increases,” Fillon warned,
reminding that other European countries are obliged to take more drastic
measures to restore their credibility.

Fillon said the government’s forecast of 2.5% growth from 2011 to
2013, which is a key assumption in its three-year deficit cutting plan,
is “ambitious.” But he said it was “too early” to revise it. He
reiterated, as did Finance Minister Christine Lagarde earlier Friday,
that the government would wait for second quarter GDP figures in August
to decide whether or not to modify the forecast.

He argued, however, that experience has shown instances of
stronger-than-expected growth following big economic downturns.

Nonetheless, “if the figures show that the economy is less dynamic
than expected, we must not shrink from taking the extra measures needed”
to tame the country’s deficit, Fillon said.

Speaking after a day of massive protest against the government’s
strategy to eliminate the deficit in the public pension system by 2018,
the prime minister said that the plan could still be modified around the
edges, notably for those who started work at a young age or who
exercised physically difficult professions.

“The project remains open,” he said.

However, the principle of hiking the minimum retirement age by two
years to 62 by 2018 and to 67 for those lacking the 41.5 years of
contributions is not open to negotiation, he said. “We cannot
back-pedal on the fundamentals of the reform.”

Fillon also reiterated his support for Labor Minister Eric Woerth,
whose competence to pilot the pension reform is under attack from
opposition leaders who accuse him of a conflict of interest because his
wife worked as a fiscal counsellor for a wealthy investor under
suspicion of tax evasion.

“I have total confidence in the labor minister,” Fillon declared.

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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