France will take a few months to plan 2014 cuts: PM

PARIS (REUTERS) - France's Socialist government, battling to cut its fiscal deficit to below an European Union (EU) ceiling, will take the next few months to plan where spending cuts in 2014 will fall, Prime Minister Jean-Marc Ayrault said.

Laying out a six-month plan of action at the first cabinet meeting of 2013 on Thursday, Mr Ayrault said priorities were to revive growth, stem a rise in unemployment and identify where spending could be hacked back.

The Socialist government has promised 12.5 billion euros (S$20.2 billion) in public spending cuts next year to help fund a program of tax credits to companies, but analysts fear this will be difficult to achieve on top of a spending freeze this year.

"We will lay out the savings measures after the spring," Mr Ayrault told the cabinet meeting.

"This is not about trimming public spending and headcount indiscriminately, as the previous government did, but about getting rid of overlap and wasteful spending," he wrote in a column for afternoon daily Le Monde.

With President Francois Hollande's government admitting it may review by April a 2013 growth target of 0.8 per cent that analysts see as overblown, signs are growing Paris may seek to negotiate an extra year to get its deficit, at 4.5 per cent of economic output, below a European Union ceiling of 3 per cent.

In an interview to be published in Friday's business daily Les Echos, finance minister Pierre Moscovici said France was sticking to its 3 per cent target for 2013, but would discuss the situation with the European Commission in April, when it reassessed its growth forecast.

"The debate will then have to take into account the situation of all European states. But I don't want to send out any signals that might encourage us to give up our efforts," Mr Moscovici said.

Even with an extra year's leeway, the government could struggle to get meaningful cuts agreed by lawmakers, many of whom are also town mayors and would likely resist cuts to perks, staffing and general funding.

With municipal elections due in 2014, the government will struggle to explain any cuts to the teachers, train conductors, bus drivers and local government office workers who make up a large portion of its voting constituency.

RATINGS AND YIELDS

Public sector largesse and generous welfare means state spending eats up 56.3 percent of France's economic output.

Mr Hollande's economic advisors admit they are looking at a blank page in terms of where cuts could be made.

Yet demand for French debt has stayed resilient despite the fact Standard & Poor's and Moody's both removed their triple-A sovereign ratings on France in 2012.

France's long-term bond yields fell in the Treasury's first debt sale of the year on Thursday, as high appetite for liquid French paper outweighed a sovereign downgrade in November by Moody's rating agency.

Fitch maintained its AAA on Europe's No 2 economy in December but warned that there was little room for leeway as the country battles to bring down its public deficit in the face of sickly economic growth.

On the other fronts, Mr Ayrault said the government would push ahead with legislation to making hiring and firing more flexible even if employers and unions fail to reach agreement in negotiations that will restart next week.

He said legislation to put unionised employees on company boards, to give unions more say in strategic decisions in return for ceding some power, would be presented before April.

Separately, Mr Hollande's office said that Mr Claude Serillon, a former TV newsreader, was appointed on Thursday as a new advisor tasked with polishing the president's image as economic gloom keeps his approval ratings stuck at around 36 per cent.

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