Friday, after markets in the US had closed and while most of France was asleep and no one was supposed to pay attention, ratings agency Fitch – a jointly-owned subsidiary of the French company FIMALAC and Hearst Corporation – cut France’s credit rating one notch to “AA” from “AA+”.
The French government had disclosed in September that its budget deficit would actually rise, despite previous promises that it would decline. Instant brouhaha in Brussels. And Fitch slapped France with a Rating Watch Negative. The government, in an effort to appease Fitch and the EU, announced new budget savings of €3.6 billion – a measly 0.17% of GDP – for 2015; it would lower the official deficit target to 4.1% of GDP. Still far above the EU limit of 3.0%, one of the core rules designed to avoid debt crises of the kind that the Eurozone is still simmering in.
Now, in “a significant slippage against prior budget deficit targets,” as Fitch pointed out, the government projects an even higher deficit of 4.4% of GDP for 2014. And the projections for 2015 – unachievable as they may be – remained at 4.1%, where the deficit had been in 2013, and when the government had promised up and down to get it below the EU limit by 2015. But forget it. The government kicked that can to 2017.
Instead of putting its foot down, the European Commission tried to avoid ruffling feathers in France. It didn’t want to give the rightwing, anti-euro National Front any additional ammo. So it granted France even more time to comply.
But Fitch lambasted France’s relentlessly rising deficits, its persistent inability to comply with the EU’s deficit rules, and its outright refusal to stick to its very own deficit targets. France’s credibility was on line, Fitch said, and the ability of its public finances to “absorb shocks has been significantly reduced.”
On Saturday, Bundesbank President Jens Weidmann weighed in. Germany and France are joined at the hip. They’re each other’s largest trading partners. They depend on each other for economic growth. So he told the French paper Le Figaro that the Commission’s decision to give France a few more years would damage the credibility – what little is left – of the EU’s budget rules (first broken with utter impunity by Germany itself when it was the Sick Man of Europe).
He worried that the EU budget rules are “in the end up for negotiation, and that national governments can delay budgetary consolidation in perpetuity.” France, he said, needed to come up with new measures to make its economy more competitive and its labor market more flexible.
So France is coming up with new potent measures to exit its economic debacle. Sunday shopping is one of them. If it weren’t so sad, it would be hilarious. By WOLF STREET contributor Hilary Barnes, of Euro Politico Twitting:
A visitor to France taking a casual look at the current news headlines might be forgiven for thinking that the major issue facing France today is whether supermarkets should be allowed to stay open, under certain conditions, for five Sundays a year or 12, as the socialist government of President François Hollande is proposing.
The visitor might be even more surprised when learning that this minor tweak to French habits is seen as playing a critical part in persuading the European Commission, as well as Chancellor Angela Merkel of Germany, that France is making serious efforts to reform the country’s economy.
This matters. If the European Commission is not convinced, it may expose France to the treatment that was applied to Greece, Spain, and Italy when the Commission tells the French what they must do in order to get their budget under control.
So far the commission has backed away from going this far, well aware that it would provoke a major crisis between France and the commission, or even, as some observers say, a revolution in France.
It also matters because the issue is causing a deepening split in the ranks of the Socialist Party in the National Assembly, the legislature.
Few people think that the split would go so far as to cause the government to go down to defeat on a vote of confidence. This situation will be avoided at all costs: the president and his government are so unpopular that to risk a new election to the National Assembly would be suicidal for the socialists.
But it might well turn into an issue on which the president finds he has to replace Prime Minister Emmanuel Valls, who’d been appointed in early April as a reformer, with someone else.
The likelihood of this happening may have increased with the decision of Mme Martine Aubry – who lost against François Hollande during the Socialist Party’s presidential primaries in 2012 – to come out in direct opposition to more Sunday shopping.
She described the proposal, one of several reforms designed “to unlock the economy” proposed by Economy Minister Emmanuel Macron, as “a regressive reform” against the arduous struggle by the socialists of yesteryear to make Sunday a day of rest.
As minister of labor at the beginning of the century, she was responsible for implementing the cut in the working week from 39 to 35 hours with no reduction in pay.
Whether one likes or dislikes Mme Aubry, or approves of policy preferences that are well to the left of the social democratic profile favored by President Hollande, she is a powerful personality, and it is quite possible that with her left-wing profile she would prove more successful than Prime Minister Valls in holding the party in the National Assembly together. Whether that would be good for France is an open question (By Hilary Barnes, Euro Politico Twitting).
This is what France is wrestling with: its own governmental incompetence and a categorical refusal to change, even in minor things, to introduce just a teeny-weeny bit of flexibility, such as allowing people to go grocery shopping on Sundays – well, not every Sunday, just on 12 Sundays per year. Like most of the other reforms introduced over the years, Sunday shopping a few more times a year won’t do a thing for the French economy. It’s just another one of the famous French non-reforms. But hilariously, the government is even blowing that.
Any lingering hopes that the debt crisis was put to rest are brutally dashed. Investors are bailing out: Greek stocks plunged 20% in three days. Read… Eurozone Comes Back to Reality With a Crash