THE International Monetary Fund (IMF) warned France yesterday it would miss its 3% deficit target for 2013 unless it took further steps to cut medium-term spending, and safeguard its AAA credit rating.

If France lost its AAA rating, it could unravel all attempts to calm the euro-zone crisis as it is the bloc's triple-A countries that underwrite the European Financial Stability Fund at the heart of the rescue effort. Standard & Poor's said last month it would probably cut France's AAA rating in the long term if the government did not push through further important reforms.

With France gearing up for presidential elections in April, the IMF backed President Nicolas Sarkozy's proposal to write balancing the budget into the constitution - bitterly opposed by the Socialist Party.

Mr Sarkozy has staked his reputation on cutting France's deficit from 7,1% of gross domestic product (GDP) last year to the limit of 3% under the euro zone's Stability and Growth Pact by 2013.

Budget Minister Valerie Pecresse said yesterday that pledge was "sacrosanct" and the government stood ready to make further reductions in tax exemptions . France's Finance Minister Francois Baroin said earlier this month the 2012 budget would have to find more revenue, notably by cutting various tax breaks by more than the ?3 bn foreseen.

In its annual review of France's economy, the IMF said it expected growth and tax revenue to miss government projections. It forecast the deficit would fall from 5,7% of GDP this year to 4,8% next year but not fall below 3,8% by the end of 2013.

"Under staff's current projections, achieving the deficit target of 3% of GDP by 2013 requires further measures," the report said.

With tax rates already among the highest in Europe, France's only option was to cut spending to meet fiscal targets, the IMF said, particularly in pensions and healthcare.

"We're on the edge, we're worst among the AAA countries. France needs to make a big effort to stay (among the m)," Philippe Delienne, president of Convictions Asset Management, said in Paris this week.

France has the highest deficit, debt and primary deficit - which excludes interest payments - among the AAA-rated euro-zone countries.

Under its baseline scenario, the IMF said France's debt would peak at 88% of GDP in 2013, but it warned it could hit 95% of GDP if interest rates were higher than expected and growth slower. The government forecasts debt will peak at 86,9% of GDP next year.

The IMF, headed by former French finance minister Christine Lagarde, said the reform to the constitution being debated by parliament would "help to unequivocally signal the authorities' commitment to the adjustment path".

The deficit is shaping up to be a major theme in the two-round presidential election in April and May .

The Socialists are likely to shoot down a bill that the government wants to put to a special two- chamber vote that would write a German-style budget-balancing rule into the constitution.

Eager to avoid being seen as soft, both main candidates to run for the Socialists, Francois Hollande and Martine Aubry, said at the weekend they would respect the government's pledge to cut the deficit to the EU ceiling in 2013.

However, the Socialists have also vowed to pick apart last year's pension reform by Mr Sarkozy, which rating agencies say helped to support the AAA rating. Reuters

We're on the edge, we're the worst among the AAA countries. France needs to make a big effort to stay among the m