"Precarious" economy limits French options -Merkel ally

BERLIN Tue May 8, 2012 12:21pm BST

German Chancellor and Christian Democratic Union (CDU) party leader Angela Merkel gestures before a party board meeting in Berlin, May 7, 2012. REUTERS/Fabrizio Bensch

German Chancellor and Christian Democratic Union (CDU) party leader Angela Merkel gestures before a party board meeting in Berlin, May 7, 2012.

Credit: Reuters/Fabrizio Bensch

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BERLIN (Reuters) - A new French government will have very little room to manoeuvre on fiscal policy because the country's economy and finances are in a "precarious" position, a leading conservative ally of German Chancellor Angela Merkel said on Tuesday.

Peter Altmaier, parliamentary whip for Merkel's Christian Democrats (CDU), said he was personally disappointed with the result of Sunday's presidential election in France, which saw Socialist Francois Hollande beat conservative Nicolas Sarkozy, but expressed confidence that Europe's focus on debt consolidation would not be affected.

"The French economy and the country's finances remain in a precarious position," Altmaier told reporters.

"Any country that attempts through higher deficits ... to run a supply-driven policy will run afoul of the markets very quickly and see its interest rates rise," he added. "There simply isn't any wiggle room."

France is struggling with weak economic growth, a gaping trade deficit, 10 percent unemployment and strained public finances that prompted ratings agency Standard & Poor's to cut the country's triple-A credit rating in January.

Despite this backdrop, Hollande promised during his campaign to raise the minimum wage, hire tens of thousands of new teachers and dilute the increase in France's retirement age that Sarkozy pushed through against strong opposition from unions and the French left.

Many expect him to water down some of these plans after an audit of state finances that could be completed next month.

Altmaier said he was hopeful, once French parliamentary elections are over in June, that Berlin could reach a policy consensus with Paris that reaffirmed the path of budget consolidation in Europe "once and for all".

(Reporting by Noah Barkin and Andreas Rinke, editing by Gareth Jones)

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