France battles rumours of credit-rating downgrade
The Standard & Poor's credit rating agency said it saw no reason to downgrade sovereign debt as France had a clear policy to reduce its budget deficit
Wednesday 10 August 2011
French ministers attempted yesterday to head off speculation that Paris might be the next big country to lose its AAA credit rating.
Both the finance and budget ministers gave lengthy radio interviews which seemed to be aimed more at the "bond vigilantes" on international markets than their domestic audience. Valérie Pécresse, the budget minister, said France would "not deviate one iota" from its promise to reduce its budget deficit from 7.1 per cent last year to 4.6 per cent of gross domestic product next year and 3 per cent by 2013.
If "more efforts" – ie spending cuts or tax rises – were needed, Ms Pécresse said, "then we will make more efforts". Her boss, the finance minister François Baroin, gave a similar pledge and spelled out the reasons why international investors should have no fear for France's economic stability.
"France has a diversified economy, a skilled workforce, a strong banking system and one of the highest savings rates in the world," he added.
Earlier this week, the Berlin-based economics institute, the DIW, warned that France could be the next target, after the US, for a downgrading by one of the international rating agencies of its AAA rating for sovereign, or government, debt. The DIW said such a move could be the straw that broke the back of the euro.
The Standard & Poor's rating agency, which was widely vilified for downgrading US sovereign debt last week, said this week that it saw no reason to take similar action against France. It said the French, unlike the Americans, had a clear policy to reduce the budget deficit.
Nonetheless, there has been pressure on French debt on the financial markets. The cost of credit default swaps – insurance policies against a default – on French debt have reached record levels in recent days.
Paris has, so far, done less than Britain or even relatively prosperous Germany to cut back government spending.
France is one of the few large countries to still have a "primary" budget deficit, in other words a deficit even after repayments on old debt have been excluded.
Painful decisions face the French government when it puts forward next year's budget this autumn, just before next spring's presidential election. France pays €50bn a year interest on its old debts.
Its remaining "deficit" is €60bn a year, all of which has to be dissolved by spending cuts or tax rises if Paris is to meet its target of a deficit of 3 per cent of GDP by 2013.
- 1 Tamir Rice: 12-year-old boy playing with fake gun dies after being shot by Ohio police
- 3 Halle Berry takes ex-boyfriend Gabriel Aubry to court for allegedly trying to make daughter look less African-American
- 4 Isis propaganda image showing 'abuse of Muslim woman by soldiers' is actually taken from Hungarian porn film
- 5 'You should come to my house and eat cheeses with me': 4-year-old sends adorable love letter to girl at school
Turkish President: 'Equality between men and women is against nature'
Tamir Rice: 12-year-old boy playing with fake gun dies after being shot by Ohio police
Ferguson decision: Tea Party website mocks Michael Brown's family over T-shirt typo
Michael Brown shooting: Ten things we know – or know better – now the Ferguson grand jury's work is over
Isis propaganda image showing 'abuse of Muslim woman by soldiers' is actually taken from Hungarian porn film
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
Rochester by-election: Labour MP Emily Thornberry resigns after posting white van and England flags tweet
The young are the new poor: Sharp increase in number of under-25s living in poverty, while over-65s are better off than ever
Revealed: How the world gets rich – from privatising British public services
Exclusive: UK approved £7m Israeli arms sales in six months before Gaza conflict
Excellent Salary: Austen Lloyd: CHESHIRE MARKET TOWN - An exciting and rare o...
Excellent Salary : Austen Lloyd: NORTH HAMPSHIRE - SENIOR POSITION - An exciti...
£29000 per annum: Recruitment Genius: A Gas Installation Engineer is required ...
£28000 per annum: Recruitment Genius: A Domestic Gas Technical Surveyor is req...