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Moody's downgrades France despite reform plans

AFP

Credit rating agency Moody’s downgraded France’s sovereign rating by one notch to Aa1 from Aaa on Monday citing its uncertain fiscal outlook. The move comes despite France’s recent deficit reducing budget.

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Credit rating agency Moody’s has downgraded France’s top AAA rating to AA1 with a negative outlook, as President François Hollande struggles to kick-start economic growth and reduce public debt.

The rating agency said the decision to downgrade France, which follows a similar negative assessment from Standard and Poor’s in January 2012, reflected the country’s deteriorating economic outlook and the wider European recession, despite Hollande’s recently announced reform plans.

"France's long-term economic growth outlook is negatively affected by multiple structural challenges, including its gradual, sustained loss of competitiveness and the long-standing rigidities of its labour, goods and service markets," Moody's announced in a press release.

"The track record of successive French governments in effecting such measures over the past two decades has been poor," Moody's said about the French reform plans.

Moody’s also warned that France, which is Europe’s second-largest economy, could become a victim of the bailouts to euro zone partners: “France is disproportionately exposed to peripheral European countries such as Italy through its trade linkages and its banking system.”

The French government has laid the blame for the country’s weak economic outlook on the failures of previous administrations, and points out that since the defeat of former president Nicolas Sarkozy in May 2012, Hollande has introduced tax increases that will reduce the deficit to 3 per cent of GDP by end of 2013.

Hollande also announced earlier in November that he would overhaul France’s job regulations, in particular by reducing employment charges, in an effort to promote growth and reduce high unemployment, which passed the three million mark in September.

Despite lowering France’s rating, Moody’s said there was still positives for a country which had “significant credit strengths”.

However, Moody's told Reuters on Tuesday that it will downgrade the country's debt further if the government fails to implement reforms such as a labour market overhaul.

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