Top credit rating a challenge for Paris By Peggy Hollinger in Paris Published: May 31 2010 03:00 | Last updated: May 31 2010 03:00 France yesterday admitted it faced a challenge to maintain its top notch triple A credit rating, but sought to reassure markets with a pledge to implement controversial cost-cutting to bring down public debt. François Baroin, budget minister, said the government was committed to maintaining the rating that has helped to keep down the heavily indebted state's borrowing costs. But "the objective is challenging and it will in part condition the savings strategies that we want to have", he said in an interview on Canal Plus television. The comments came after Fitch, the credit rating agency, downgraded Spanish sovereign debt on Friday amid concerns over the sluggish outlook for economic growth. The downgrade sent both the S&P 500 and Dow Jones Industrial Average more than 1 per cent lower on the day, capping their worst month in more than a year. Eurozone governments are increasingly concerned to reassure markets as fears intensify over sovereign debt in the wake of the Greek crisis. France, in particular, has drawn criticism from some economists for announcing a debt reduction plan that relies too heavily on optimistic growth forecasts. François Fillon, prime minister, has said government spending will be frozen at last year's levels, day-to-day running costs reduced, while some â¬5bn in tax niches will be cut. Nonetheless France must find some â¬100bn ($123bn, £85bn) in savings if it is to meet its target of bringing the public deficit from a forecast 8 per cent this year to 3 per cent by 2013. Any downgrade would increase the challenge, pushing up borrowing costs that already drain budget finances. A downgrade could also raise questions over the borrowing capacity of France's biggest cities. In a documentary before Mr Baroin's interview, an official from the city of Paris estimated that the French capital had saved â¬30m over five years as a result of its triple A rating. In a note published in March, Moody's, the rating agency, said that France's triple A rating was "not in danger". Under most plausible scenarios, France could continue to pay its debt. However, the agency added: "The ongoing deterioration in public finances does result in an inexorable erosion of . . . the distance to downgrade." It suggested the government's deficit plans remained hostage to its growth forecasts. Aware that France's credibility could be at risk, Nicolas Sarkzoy, president, has pledged to modify France's constitution to include rules on reducing its public deficit. He has also embarked on a controversial reform of the country's pension system, which accounts for close to 70 per cent of social spending, in turn the biggest contributor to the budget deficit. The government is proposing an increase in the retirement age from 60 to 62 or 63. However, the independent Pensions Advisory Council has said that this measure alone cannot resolve the pensions deficit. Other measures will be necessary, such as extending the contribution period, and cutting the country's high unemployment rate of more than 9 per cent.
It will be interesting to see how their immagration policies are impacting on the bottom line! Regards Johno
No surprise here, lately it is a French obsession to talk down the Euro. BNP Baripas - yes, funny enough a bank in the Euro System is the most bearish with its Euro forecasts ! Sees Euro at parity and even below parity ! So if you ask yourself who is buying European peripherals CDS - no, its not Goldman this time... http://www.reuters.com/article/idUSN0611296320100506