News Column

Euro area challenged by French failure to meet deficit targets

August 19, 2014

MICHAEL BIRD



THE FRENCH government's admission that it will not be able to reach its deficit targets for the year is a negative signal for the Eurozone, according to credit ratings agency Moody's.


In a briefing note yesterday, Moody's analysts said that France's inability to reach deficit targets would prove a test of the Eurozone's capability to enforce fiscal rules.


It added that the bloc "would have failed an important test" if it allowed governments to breach the compact.


Despite an acknowledgement that President Francois Hollande's corporate tax credit plans and some modest labour market reforms should be positive for the country's prospects, the group expressed concerns about the second-largest Eurozone economy's lack of progress in other areas.


An analyst said: "Longstanding rigidities in product markets [particularly barriers to entry in many service industries such as legal services] and costly regulat-ory requirements for firms also put downward pressure on the country's growth prospects."


French finance minister Michel Sapin conceded that the country would not reach its fiscal targets in a newspaper article last week, following the announcement that the country had seen no economic growth during the second quarter of the year.


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Source: City A.M. (UK)


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