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French economy minister says austerity measures sapping growth

By Alexandria Sage

PARIS (Reuters) - Austerity measures being pursued by France and elsewhere in the euro zone are quashing growth, French Economy Minister Arnaud Montebourg was quoted saying on Saturday, renewing his attacks on policies he sees as negative for the economy.

Montebourg's interview with Le Monde daily came days after President Francois Hollande said he would accelerate reforms but not back away from his supply-side economic policy, based on bigger tax cuts for business.

The outspoken minister, a fierce critic of budget austerity, is known for frequent attacks on big business and the European Commission, which he accuses of strangling economic recovery with its prioritization of deficit reduction.

"We have to give priority to getting out of the (economic) crisis and relegate to second place the dogmatic reduction of deficits, which is driving us to austerity and a continued rise in unemployment," Montebourg said.

Without specifically taking on Hollande, he said he did not exclude France from his criticism.

"Today, forced deficit reduction is an economic aberration because it aggravates unemployment; a financial absurdity because it makes stabilizing public accounts impossible; and a political disaster because it throws Europeans into the arms of extremist parties who want to destroy Europe," Montebourg added.

He pointed a finger at Germany, saying the euro zone's largest economy was "trapped by the austerity policy she has imposed on all of Europe."

While not as strident as the comments by Montebourg, French Finance Minister Michel Sapin similarly argued for moderated deficit reduction in an interview published in Italian newspaper La Repubblica.

NEGATIVE GROWTH

"The euro zone is at risk of getting stuck in a spiral of weak or negative growth. We absolutely must slow down the rate of deficit reduction," Sapin was quoted as saying.

"And it will take time for investments decided upon at the European level to produce their first results. In the meantime we need to reorientate economic policies, adapting the rate of deficit reduction to the economic situation," he added.

Hollande's government was forced to abandon growth and fiscal targets for 2014 and 2015 earlier this month after data showed the economy delivered no growth for the second straight quarter.

The most unpopular French president in modern history, Hollande has already failed to meet his goal of reversing the rise in unemployment by the end of last year.

His pro-business strategy designed to lift the economy out of stagnation through tax breaks for companies in exchange for hiring promises has alienated many lawmakers on the left wing of the ruling Socialist party.

Prime Minister Manuel Valls on Sunday dubbed "irresponsible" propositions made by members of this camp to abandon the so-called "responsibility pact," acknowledging it would take time to produce results.

Still, Hollande said last week he would reform welfare benefits and income tax rules to ease the strain on poorer households, and boost home construction - an important stimulus of the economy - without providing concrete details.

The Socialist party begins its annual end-of-summer gathering on Thursday in the port town of La Rochelle, where those who oppose fiscal rectitude will have a chance to air their gripes over economic policy.

(Additional reporting by Isla Binnie in Rome; Editing by David Holmes)

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