France unveils tough budget, Spain's Rajoy wins time

Fri Sep 28, 2012 1:37pm EDT
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By Daniel Flynn and Julien Toyer

PARIS/MADRID (Reuters) - France unveiled an austerity budget that would tax business and the super rich, but a report showing Spain's banks needed a manageable 59 billion euros in new funds bought time for Prime Minister Mariano Rajoy as he seeks to avoid a bailout.

Socialist President Francois Hollande's 2013 budget amounts to France's toughest belt-tightening for 30 years as the debt crisis takes its toll on the euro zone.

The package aims to narrow France's deficit to 3.0 percent of national output next year from 4.5 percent this year, bringing in 30 billion euros ($39 billion) for the treasury.

But the budget dismayed business by opting for tax hikes -- including a 75 percent tax on those earning over one million euros a year -- by holding public spending and not cutting government jobs.

With Hollande facing record unemployment and economic stagnation, there were also fears the deficit target will slip as France falls short of the modest 0.8 percent economic growth rate on which it is banking for next year.

"This is a fighting budget to get the country back on the rails," Prime Minister Jean-Marc Ayrault said, adding that the 0.8 percent growth target was "realistic and ambitious".

In Spain, an independent audit of the country's banks confirmed that a manageable 59.3 billion euros in extra capital is needed for them to ride out a serious economic downturn, buying time for Rajoy who faces intense pressure to seek an international bailout.

The audit is a condition of getting European funds to patch up Spanish banks that have been damaged by a prolonged real estate crash.   Continued...

French Prime Minister Jean-Marc Ayrault walks to deliver a speech after the weekly cabinet meeting at the Elysee Palace in Paris, September 28, 2012. Ayrault announced a budget bill for 2013 that commits France to 30 billion euros ($39 billion) of tax hikes and spending cuts with the goal of reducing the public deficit to 3 percent of GDP next year to honour the country's European commitments. REUTERS/Philippe Wojazer