Sarkozy breaks off holiday for emergency debt crisis meeting

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President Nicolas Sarkozy interrupted his vacation on the French Riviera Wednesday to hold an emergency government meeting on the debt crisis rattling global markets.

Sarkozy, who was at the seaside home of his pregnant pop star wife Carla Bruni, and other European leaders had come under fire for staying on their summer holidays as turmoil engulfed the financial markets.

But the right-wing president has now returned to Paris to meet Wednesday with his prime minister -- who has broken off a holiday in Italy -- and finance and budget ministers as well as the French central bank chief, his office said.

Sarkozy's return came as the debt crisis eased somewhat after the European Central Bank began buying Spanish and Italian bonds but investor jitters continue on fears the US and eurozone debt crises will spark a new recession.

European stocks rallied in opening deals on Wednesday, driven by sharp gains in Asia and on Wall Street overnight after the US Federal Reserve said it would hold near-zero interest rates for two years.

But the eurozone debt crisis continues, fuelled by fears that Spain or Italy might default on their debt and possibly spark a break-up of the currency shared by 17 countries.

EU leaders are trying to implement a July 21 agreement aimed at beefing up the euro's defences. But many of the measures need national parliamentary approval and that process that could drag on to the end of the year in some cases.

The debt crisis has turned public deficits into a major issue in the run-up to next year's presidential election in France, which has not produced a balanced budget in three decades.

France is often cited as as a possible candidate for losing the coveted top credit rating after the United States, which Standard & Poor's last week stripped of its its AAA status.

But the government has been insisting that it will meet its deficit reduction targets, even if interest payments on France's public debt are set to be the biggest expense for the state this year.

Sarkozy is also attempting to write a deficit-balancing "golden rule" into the constitution that would make balanced budgets obligatory for future French governments but the opposition Socialists are blocking the move.

The French deficit currently stands at 5.7 percent of gross domestic product and the government has vowed to reduce it to 4.6 percent of GDP next year and to 3.0 percent, the EU limit, in 2013.

But the International Monetary Fund said last month that France would probably need extra action to cut its public deficit in 2012 and 2013 as falling growth threatened to complicate economic recovery.

It said that without further efforts France was set for a public deficit of 3.8 percent in 2013, still above both the EU limit and the government's forecast.

The French central bank this week forecast that France would grow by only 0.2 percent in the third quarter.

© 2011 AFP

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