S&P Slaps France with Credit Downgrade


Though news out of Spain and Germany in recent days has painted a more hopeful picture of recovery prospects in the European Union, Friday’s French credit rating downgrade illustrates that many issues still complicate the potential of a consistent rebound.

Standard & Poor’s (S&P) lowered France’s long-term foreign and local currency sovereign credit ratings to “AA” from “AA+.” Though not new critiques, S&P rationalized the decision by attacking the French government’s approach to budgetary and structural reforms to taxation. That, along with weakness in manufacturing and labor markets, “is unlikely to substantially raise France’s medium-term growth prospects,” S&P noted. “We see France’s fiscal flexibility as constrained by successive governments’ moves to increase already-high tax levels and what we see as the government’s inability to significantly reduce total government spending.”  It added that double-digit unemployment would likely continue acting as a drag on growth and reform efforts through 2016.

However, S&P set France’s outlook at stable on Friday, noting that the probability of another change in the French sovereign ratings was unlikely (less than one-in-three) within the next two years.

- Brian Shappell, CBA, CICP, NACM staff writer

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