Moody's cut unkind, eco sound: France
zone, has been borrowing at historic low levels of around 2 percent for long-term bonds as investors consider it a safe haven from the turbulence in southern countries such as Greece and Spain.Yet Moody's said it was keeping a negative outlook on France due to structural challenges and a "sustained loss of competitiveness" in the country, where business leaders blame high labour charges for flagging exports.
"The first driver underlying Moody's one-notch downgrade of France's sovereign rating is the risk to economic growth, and therefore to the government's finances, posed by the country's persistent structural economic challenges," Moody's said.
"These include the rigidities in labour and services markets, and low levels of innovation, which continue to drive France's gradual but sustained loss of competitiveness and the gradual erosion of its export-oriented industrial base." Moscovici told Reuters late on Monday the downgrade was a motivation for the 6- month-old Socialist government to pursue reforms, but he noted that even after the S&P downgrade French debt has enjoyed record low yields. He also said the government was committed to meeting its target of cutting the public debt to 3 percent of economic output next year from an estimated 4.5 percent this year.
"There is probably more downside until the knee jerk reaction is out of the way. But on the whole it seems likely that this more reflects an existing reality than new information for the market," said Steven Englander, global head of G10 FX strategy at Citi.
REFORMS AHEAD
Moody's had been waiting to examine Hollande's
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