Sarkozy to announce fresh austerity as France sucked into whirlpool

He told his key ministries they have a week to draft sharp new austerity measures, which may include the closing of tax loopholes and spending cuts.

Paris’ promise to reduce the budget deficit from 7.1 percent in 2011 down to three percent by 2013 will be maintained no matter how the country’s economic situation evolves.

While credit rating agencies have said that the outlook for France remains stable, earlier growth predictions of two percent this year and slightly higher in 2012 may turn out to be not quite so rosy after stagnating in the second quarter of this year. Industrial production slipped by 1.6 percent in June.

If the growth predictions are not realised while deficit reduction must still be met, then the revenue gap must come from somewhere: further austerity or tax rises.

It is understood that included amongst ideas already under consideration will be the elimination of a slew of tax loopholes, freeing up monies in the single-digit billions.

Firmer figures on the growth rate for the second quarter are to be released on Friday (12 August), potentially piling up the pressure on the government.

The schedule for the announcement of new measures is frantic.

Following the delivery of new austerity proposals from his ministers, Sarkozy and his prime minister, Francois Fillon, are to decide on what must be cut in the 2012 budget on 24 August. Parliament will then consider the measures sometime in the autumn.

The crisis meeting came as French bank shares suffered a mass sell-off on Wednesday.

Societe Generale slumped 21 percent at one point, with Credit Agricole down 13 percent and BNP Paribas down 10 percent.

The tumble is the product of growing worries of French financial institutions’ exposure to Italian debt: estimated to be some €410 billion.

Separately on Wednesday, the Dutch prime minister returned home from holiday to ready the approval of new Greek bail-out measures by the country’s parliament.