Now France hit by budget pain

France has admitted that keeping its prized AAA credit rating will be "a stretch" without tough budgetary decisions. It follows hints from Germany that it might have to raise taxes to bring down its budget shortfall.

France's budget minister François Baroin indicated that the country should not take its rating for granted. "We must maintain our AAA rating, reduce our debt to avoid being too dependent on the markets, and we must do this for the long term," he told French TV station Canal Plus in an interview.

The French deficit is set to hit 8 per cent of GDP this year, but the country wants to get it down to within the European Union's 3 per cent limit for eurozone members.

France does not want to suffer contagion from the Greek crisis, and there are doubts about Spain, which had its credit downgraded again on Friday. Five regional banks are in talks about a merger with Caja Madrid as Spain tries to restore confidence in its economy.