French prime minister urges big cost-cutting

[June 25, 2010]  PARIS (AP) -- France's Prime Minister Francois Fillon on Friday rebuffed unions angry over plans to raise the retirement age by two years, urging the French to show "courage" and make an unprecedented effort to cut the enormous national debt.

The government said Friday it's considering freezing public sector salaries for the next three years -- a prospect that prompted unions to slam the door on salary talks with the labor minister in protest.

Unions are energized after nationwide strikes and protests Thursday that brought nearly a million people to the streets to protest President Nicolas Sarkozy's bid to reform a money-losing pension system. The reform includes raising the retirement age from 60 to 62 -- which would still be among the lowest in Europe.

Fillon defended the pension reform at a news conference hastily arranged after Thursday's protests.

Fillon said he "understands the worries" of workers, but added, "We must break the spiral of indebtedness. ... We need a bit of courage."

He carefully avoided using the word "austerity," saying it was too soon to impose cutbacks like the more sweeping ones introduced in Germany or some other European countries.

He spoke as Sarkozy and Finance Minister Christine Lagarde were heading to Canada for meetings of the G-8, or Group of Eight, and later the G-20, or Group of 20 leading world economies.

A key subject at the discussions will be how to revive the world economy after global financial meltdown, and how much and how fast to cut government spending.

Lagarde said on France-Inter radio Friday that France's pension reform is the government's way of "trying to send a message of security to the markets" about France's commitment to cutting its debt.

The French budget deficit was at 7.5 percent of gross domestic product last year. The conservative government has vowed to bring it under 3 percent -- the threshold set by the European Union -- by 2013. The Greek crisis has given added urgency to France's plans to cut back.

Fillon insisted that the pension reform and other cost-cutting would not threaten to slow the economic recovery, and reiterated forecasts that the French economy will grow 1.4 percent this year after contracting 2.5 percent last year.

Fillon said the retirement reform will save nearly euro19 billion ($29.3 billion) in 2018 and should bring the pension system back into the black that year.

Unions say money for the pension system should come from higher taxes or charges on those who are still working, and see cost-cutting in the pension system as an attack on a hard-fought way of life. The government says that given rising life expectancy, workers must retire later.

Unions have long feared that public sector salaries could be targeted in cost-cutting measures, and the government confirmed Friday that a 3-year salary freeze is on the table, according to Jean-Marc Canon, head of the CGT-Fonction Publique union.

He was part of salary talks with Labor Minister Eric Woerth on Friday that ended in a union walkout.

[Associated Press; By ANGELA CHARLTON]

Associated Press writers Jean-Marie Godard contributed to this report.

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