French down­grade widens gulf with Ger­many amid EU bud­get dis­pute

The Pak Banker - - Front Page -


France’s loss of the top credit rat­ing at Moody’s In­vestors Ser­vice may weaken Pres­i­dent Fran­cois Hol­lande’s lever­age in Euro­pean bud­get talks and deepen con­cern in Ger­many over its neigh­bor’s lag­ging com­pet­i­tive­ness.

The down­grade of Europe’s sec­ond-big­gest econ­omy un­der­scores the con­cern ex­pressed by al­lies of Ger­man Chan­cel­lor An­gela Merkel that the So­cial­ist Hol­lande’s fail­ure to rec­og­nize the ur­gency of France’s woes risks a deep­en­ing of Europe’s slump.

With French bonds ral­ly­ing since Stan­dard & Poor’s stripped the coun­try of its AAA credit rat­ing in Jan­uary, the im­pact of the Moody’s down­grade may be more po­lit­i­cal than fi­nan­cial.

“This down­grade will cer­tainly in­crease pres­sure on France big time,” Jan Techau, di­rec­tor of the Carnegie En­dow­ment for In­ter­na­tional Peace of­fice in Brussels, said to­day in a phone in­ter­view. “It gives Ger­many more of an edge over France.”

With French bonds ral­ly­ing since Stan­dard & Poor’s stripped the coun­try of its AAA credit rat­ing in Jan­uary, the im­pact of the Moody’s down­grade may be more po­lit­i­cal than fi­nan­cial. Just last week, Ger­man Fi­nance Min­is­ter Wolf­gang Schaeu­ble spoke out against his coun­try­men call­ing France the “sick man” of Europe. The day be­fore, France’s Lib­er­a­tion news­pa­per ran a front­page ar­ti­cle high­light­ing Ger­man anx­i­ety about Hol­lande’s poli­cies. French debt fell to­day, with 10year yields ris­ing 2 ba­sis points to 2.09, al­though that’s still close to the record low of 2.002 per­cent reached Aug. 3, show­ing in­vestors don’t share Ger­man con­cerns.

The spread be­tween French and Ger­man gov­ern­ment 10-year debt is about 73 ba­sis points, down from more than 200 ba­sis points a year ago and 143 ba­sis points when Hol­lande took of­fice in mid-May.

“I don’t want to down­play this de­ci­sion, but France re­mains one of the top-rated coun­tries,” French Fi­nance Min­is­ter Pierre Moscovici said at a press con­fer­ence to­day in Paris. “There will not be a loss of con­fi­dence be­tween France and Ger­many.”

Head­ing into a sum­mit be­gin­ning Nov. 22 in Brussels to de­liver the next seven-year Euro­pean Union bud­get, France has op­posed pro­pos­als to cut farm spend­ing as un­ac­cept­able, while Ger­many is seek­ing to con­tain EU ex­pen­di­tures.

France is Ger­many’s clos­est part­ner in Europe and it “would be good if the So­cial­ists there would coura­geously ini­ti­ate real struc­tural re­forms now,” Volker Kauder, head of the par­lia­men­tary group of Merkel’s Chris­tian Union bloc said, ac­cord­ing to a Spiegel mag­a­zine re­port this month. Ger­many would like Hol­lande to “move a lit­tle more” to­ward Merkel, Kauder was quoted as say­ing.

Hol­lande has mainly moved in the op­po­site di­rec­tion. He low­ered the re­tire­ment age for some work­ers, im­posed a tax of 75 per­cent on earn­ings over 1 mil­lion eu­ros ($1.27 mil­lion) and lifted the min­i­mum wage. He has also con­sis­tently pressed Merkel to ease her push for aus­ter­ity to fight Europe’s three-year-old debt cri­sis.

France is on track to roughly match last year’s record trade deficit, ac­cord­ing to the fi­nance min­istry, and un­em­ploy­ment has jumped to a 13-year high as com­pa­nies such as PSA Peu­geot Citroen (UG) SA and Al­catelLu­cent (ALU) slash thou­sands of jobs. “The re­la­tion­ship be­tween France and Ger­many on eco­nomic terms is like a shot­gun mar­riage,” Fredrik Erixon, head of the Euro­pean Cen­ter for In­ter­na­tional Po­lit­i­cal Econ­omy in Brussels, said in a phone in­ter­view to­day. “Ger­many is help­lessly watch­ing the de­te­ri­o­ra­tion of the French econ­omy, know­ing that it will have an im­pact on Ger­many and the euro area — but with­out Ber­lin be­ing able to do much about it.”

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