Judge us on results: France

PARIS- Agence France-Presse

A pedestrian walks past the building housing the offices of Moody’s credit ratings agency in Paris. Moody’s has downgraded France’s credit rating from AAA to AA1 over the country’s stalling growth. EPA photo

France said yesterday it would respond to a Moody’s credit downgrade by pushing on with reforms but complained the ratings agency had overlooked steps already taken to revamp the euro zone’s second-largest economy.
 
France lost its prized triple-A badge from the Standard & Poor’s in January and so the move by Moody’s on Nov. 19 was not surprising but it underlined doubts about Socialist President Francois Hollande’s ability to fix France’s public finances.
T
he downgrade also highlighted the divergence with the top-rated regional powerhouse Germany whose finance minister called it a “small warning” to its most important euro zone partner.

Moody’s said yesterday that it would assess the triple-A ratings of the euro zone’s EFSF and ESM bailout funds in light of the French downgrade.

However, its one-notch rating cut to Aa1 with a negative outlook did not affect the perceived status of French bonds which, along with German debt, are seen as a safe haven from the crisis in southern Europe.

“Moody’s raised concerns about France’s capacity to reform and so it is up to us to show that this time we are going to carry out reforms,” Finance Minister Pierre Moscovici, leading a government offensive to play down the move, told journalists. “The rating change does not call into question either the economic fundamentals of our country, the efforts undertaken by the government or our creditworthiness.”

The government is planning the toughest belt-tightening effort in 30 years in 2013 but must also try and halt a growth slow-down that has seen unemployment surge to 13-year highs.
 
Moody’s said it kept a negative outlook on France due to structural challenges and a “sustained loss of competitiveness” in the country, where business leaders blame high labour charges for flagging exports. It also cited “sizable exposures” of its banks to weak, southern euro zone countries.

Risk of growth
“The first driver ... is the risk to economic growth, and therefore to the government’s finances, posed by the country’s persistent structural economic challenges,” Moody’s said.

Deutsche Bank economist Gilles Moec said the fact the downgrade was largely priced-in did not take the pressure off Hollande to show he will pursue more reforms, with an overhaul of rigid hiring and firing rules seen as the most pressing.

“Public opinion in France - as well as the market ultimately - will expect a reaction from the executive,” Moec said. “The market ... is giving France the benefit of the doubt, but a further clarification of the policy stance is becoming urgent.”

 Moody’s said it could downgrade France again if efforts to free up the rigid labor market and overhaul an economy where public spending accounts for 57 percent of output ran into trouble.