By Simon Miller

President Nicolas Sarkozy has dealt a blow to the German-backed austerity plans for Europe by promising a referendum on the issue.

Currently fighting the presidential elections, Sarkozy has proposed a "balanced budget" rule into the French constitution but if this is blocked by the Senate, he would take it to the people.

He commented: "If the Senate were to block the rule's adoption, then before the end of 2012 I would organise a referendum to ask the French people what they think."

German chancellor Angela Merkel had previously said that the fiscal pact - which would fine eurozone countries if their deficits went above 3% - was non-negotiable and would last forever.

In the first round of the presidential election Sarkozy narrowly lost out to Socialist leader Francois Hollande who remains the favourite to win the race.

Hollands has promised to rip up the fiscal pact and create a 'growth pact' that would include a financial transaction tax and eurobonds.

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