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Moody's warns France on possible negative outlook

Text by News Wires

Latest update : 2011-10-18

France will do everything in its power to maintain its triple-A rating, French Finance Minister François Baroin said Tuesday, after Moody’s rating agency warned it may place the country on negative outlook Monday.

REUTERS - France's finance minister said on Tuesday that a GDP growth target of 1.75 percent for next year would probably have to be revised down in light of weaker economic prospects, but he said the country's triple-A credit rating was solid.

President Nicolas Sarkozy's government has based its 2012 budget on that growth goal and forecast 12 billion euros of deficit-reduction measures for this year and next, while avoiding painful spending cuts ahead of a presidential election.

But most economists see that target as too optimistic. A Reuters poll last week predicted that French growth would slow to 1.0 percent next year in a scenario that could derail the government's deficit-reduction plans.

French Finance Minister Francois Baroin, who previously defended the government's forecasts, acknowledged that the growth target was probably too high and would have to be adjusted, without saying by how much or when.

"It (the 1.75 percent growth target) is probably too high compared to the development of the economic situation. We will not adapt it today," he told France 2 television. "We will adapt it, that much is clear."

The government faces the prospect of guaranteeing up to 33 billion euros of Franco-Belgian lender Dexia SA's toxic debt, but French sources say there will be no impact on the public deficit.

On Monday, Moody's warned it may slap a negative outlook on France's triple-A credit rating in the next three months if the costs for helping to bail out banks and other euro zone members stretch its budget too much.

The warning came while European Union leaders consider steps to protect the region's financial system from an expected Greek debt default. Those measures should include injection of capital into banks with exposure to Greek debt.

Michel Martinez, an economist at Societe Generale in Paris, said that France has the ability to correct any growth shortfall with corrective budget measures, but urged the government to take action this year.

"The adjustment needs to be made in the next three months or so, before the presidential election campaign gets into full swing," he said.

"If that does not happen, it will be too late and the 2012 deficit targets will not be respected," he added.

The two-round presidential election is scheduled for April-May 2012.


Date created : 2011-10-18


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