France downgrade a reminder that eurozone not mended

La Defense

It may be that the reasons for Standard & Poor's decision to cut France's credit rating will resonate more than the downgrade itself.

Because S&P is very publicly criticising France for not doing more to lift its economy out of the economic doldrums and cut persistently high unemployment.

For the ratings agency, the French government is doing too little to cut the burden of tax, reduce public spending and provide great freedom for the private sector.

This is what S&P says:

"In our opinion, the economic policies the government has implemented since we affirmed the ratings on France on Nov. 23, 2012 have not significantly reduced the risk that unemployment will remain above 10% until 2016, compared with an average of 8%-9% prior to 2012. In our view, the current unemployment levels are weakening support for further fiscal and microeconomic reforms, and are depressing longer term growth prospects.

"France's real economic output rebounded to the levels reached in the fourth quarter of 2007 only in 2013. We are projecting close-to-zero real GDP growth this year, followed by a cyclical recovery to an average of just over 1% for 2014-2015."

Not everyone will agree. Some in France - particularly among the "enarques", or elite - may well accuse S&P of straying into ideological territory and tainting its own putative impartiality. Others will of course remind us all that the reputation of S&P and the other ratings agency for getting it right is not exactly immaculate.

But the critique is shared by most international investors, and its public restatement may make them warier of lending to France, which could be expensive for the country.

Coming on the back of yesterday's decision by the European Central Bank to cut interest rates to almost zero, to ward off the threat of deflation and a return to recession, it is more evidence that the eurozone's structural weaknesses are far from being fixed.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 518.

    Path to France's prosperity

    Leave the EU & Euro.

    Negotiate FTAs with any and all nations, including the EU.

    Abolish all tariffs, allowing French consumers to enjoy cheaper imports, so that their saved capital can be reinvested & spent domestically, facilitating innovation & efficiencies that those economies who redirect capital to protecting inefficient industries cannot match.

    Bon Appétit :)

  • rate this

    Comment number 517.

    #515 Sally

    Yes --but not only -- the 1st state pension scheme.

    PIIGS --no

    Gold --I know

    Blog may close in 5 minutes

    --Thanks --Have nice Sunday.

  • rate this

    Comment number 516.

    Germany's export driven economic prosperity is an illusion.Created by overseas investment and German bank financing of exports to EU countries that can't pay back the illusion is extended by German guarantees using tax revenues and pension funds to pay its own banks to prevent Euro default by PIIGS.This shell game can't go on forever.Germans passively accepted this re-electing Chancellor Merkel.

  • rate this

    Comment number 515.

    I attribute German's relatively sensible monetary policy due to their experiences in the Wiemar Republic.

    Germany's "system" is working, for now... Do you honestly think Germany will be repaid by the PIIGS? Germany knows how precarious their situation is, they can't even get their physical gold back from the Fed:

  • rate this

    Comment number 514.

    #511 Sally

    That I have done -- but life does turn serious with time.

    With the UK, North America and Germany to choose from -- Germany wins by a long shot and on all fronts.

    --there are probably better societies ( Nordic) -- but I have not travelled to them.


Comments 5 of 518



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