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EUROZONE

No reason to cut France rating: bank chief

The head of the Institute of International Finance, a top lobby group for the banking industry, said on Friday he sees no reason for France to lose its top credit rating despite eurozone debt crisis pressure.

France “is not Germany (but is) … not in a terribly bad shape,” IIF managing director Charles Dallara said at a banking conference in Frankfurt.

Paris is doing a “good job to tackle fiscal challenges … (and) there is no case to be made for downgrading France,” Dallara said, referring to recent speculation the country could lose its top AAA credit rating due to a slowing economy and increasing pressure on its public finances.

That pressure has shown up as France has had to pay higher rates to raise fresh funds on the debt markets and as investors have put their money into safe-haven German, rather than French bonds, widening the spread between the two to record levels.

As a result, France now has to pay twice as much as Germany to get fresh funds.

France is among six eurozone nations led by powerhouse Germany which still retain the prized AAA rating but the credit ratings agencies have voiced concern about its position.

Moody’s warned in October of a possible downgrade unless action is taken to stabilise French finances.

Dallara is currently leading negotiations with Greece on a major debt rollover which will see the banks take a 50 percent loss on their holdings of Greek government bonds if it goes through.

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ECONOMY

IMF urges France to step up spending reforms to rein in debt

The International Monetary Fund on Monday warned France that its public debt is "too high for comfort", calling on the nation to tackle the issue by stepping up spending reforms.

IMF urges France to step up spending reforms to rein in debt
'Yellow vests' protest in front of the stock exchange in Paris in opposition to Macron's policies. Photo: AFP
In a report outlining preliminary findings of its 2019 mission, the IMF said tax and labour market reforms had helped keep the economy resilient despite slowing growth.
   
But it urged the government of President Emmanuel Macron to find further ways to curb spending and to ensure the measures have public support, in a nation rocked by weekly anti-government “yellow vest” protests. 
   
“France's public debt is too high for comfort,” said the IMF mission's concluding statement.
   
“While there is no immediate risk, as the currently low interest rates suggest that higher debt can be sustained at this juncture, the elevated debt level provides little comfort from a medium and long-term perspective.”
 
French public debt rises above €2,000,000,000,000 Photo: AFP
 
The IMF noted that public debt has risen from around 20 percent of gross domestic product in the 1980s to close to 100 percent. 
   
“Additional spending reforms are needed to ensure that the ongoing tax-burden reduction can be sustained and public debt placed on a firm downward path,” the statement said. 
   
The IMF maintained its growth forecast for France at 1.3 percent this year, predicting it would “stabilise at around 1.5 percent in the medium term, predicated on a recovery of domestic and external demand and on gains from recent reforms”.
   
It added that while the current outlook is positive, “risks have risen”, citing global trade tensions, the uncertainty over Britain's exit from the European Union and “in France, erosion of support for necessary economic reforms among the general public”.
 
On coming to power in 2017, Macron immediately set about trimming the deficit to bring it in line with an EU limit of three percent of GDP, which the eurozone's second-biggest economy had persistently flouted for a decade.
   
In March the national statistics agency Insee said France's budget deficit fell to a 12-year low of 2.5 percent of GDP in 2018, a greater-than-expected decline achieved despite falling growth and purchasing power.
   
But the announcement came after months of yellow vest protests, sparked last November over plans to increase diesel prices and raise taxes on pensions. 
   
Macron announced a package of tax cuts and income top-ups worth 10 billion euros in December, following the first month of the protests.
   
And in April, the government announced new plans for fresh tax cuts, to be funded by axing corporate tax breaks, reducing public spending and introducing longer working hours.
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