Moody’s said it maintained France’s top rating but kept the outlook at ‘negative’, noting that while Hollande insists growth must come first, he has not made clear how he will implement his campaign pledges at a time of great eurozone strains.
The agency, one of the top three world credit assessors, said among France’s strengths were a large, diversified economy; robust institutions and competent administration; strong social cohesion; sound and innovative debt management and important reforms, especially in the public sector and the pension system.
On the negative side, the country faced high government expenditure; a relatively large government deficit and debt plus its exposure to potential new contingent liabilities arising from a further deterioration in the eurozone debt crisis.
It noted that socialist Hollande won office earlier this month on a platform of growth first above austerity but “the path to a robust economic recovery is not yet clear and remains an uncertain variable in France’s debt equation.”
Hollande’s medium-term fiscal consolidation and economic growth objectives are quite similar to those of former president Nicolas Sarkozy, Moody’s said, with the new president’s programme requiring some €100 billion ($1.25 billion) in savings or five percent of Gross Domestic Product.
The target of balancing the accounts by 2017 is “unprecedented in France and reflects the government’s challenge to catch up and ensure the medium- and long-term sustainability of public finances.”
“It is not clear yet how precisely this reduction in the growth rate of public spending is going to be achieved, given that the new administration is aiming to stabilise the size of France’s public sector, in contrast to the outgoing government which targeted reductions in the number of civil servants.”
Hollande’s “strong commitment to the achievement of sustainable public finances is credit-positive (but) we believe that the overall level of uncertainty regarding the government’s ability to achieve its fiscal consolidation and growth targets remains unchanged.”
Moody’s said it expected the picture to become clearer in the second half of the year.
In January, Standard and Poor’s cut its top AAA rating on France by one notch to AA+, with a negative outlook, citing the strains caused by the eurozone debt crisis.