STANDARD & POOR'S DOWNGRADES FRANCE
c.2013 New York Times News Service
PARIS — Standard & Poor’s on Friday cut its credit rating on France by one notch, saying the government’s policy initiatives did not appear capable of addressing impediments to economic growth.
“We believe the French government’s reforms to taxation, as well as to product, services, and labor markets, will not substantially raise France’s medium-term growth prospects, and that ongoing high unemployment is weakening support for further significant fiscal and structural policy measures,” S&P said in explaining its decision.
The agency downgraded the country to AA from AA+ and said the outlook for the rating is “stable,” reflecting its expectations that the government of President François Hollande would hold debt in check. The agency estimated that France’s net general debt would peak in 2015 at 86 percent of gross domestic product.
France’s economy expanded by 0.5 percent in the second quarter of 2013 from the first three months of the year, for an annualized rate of about 2.0 percent. But unemployment, at 11.1 percent, weighs heavily on growth and on efforts to reduce deficit spending.
On Tuesday, Olli Rehn, the European Union’s head of economic policy, contradicted French government forecasts that show unemployment peaking this year, predicting instead that joblessness would increase until 2015.
The euro and the yield on France’s benchmark 10-year bond were little changed after the rate cut. Like the United States, which lost its AAA rating with S&P in August 2011, France has continued to borrow at near record lows, perhaps because investors see the alternatives as much worse at a time of uncertainty.
Pierre Moscovici, the French finance minister, said in a statement that he “regrets” S&P’s “critical and inaccurate judgment.”
Never had a government carried out so many reforms in such a short time, “and in such a difficult economic environment,” he said.
Moscovici also noted that France’s rating remains among the highest in the world.