(Reuters) - Moody's spared France a fresh downgrade of its debt rating on Friday even though Paris has overrun its deficit targets, warning the outlook was negative in light of difficulties pushing through reforms.
Moody's kept its rating on French bonds at Aa1, the second-highest level in its scale, saying the size and wealth of the euro zone's second-biggest economy, coupled with its currently ultra-low borrowing costs, justified keeping the rating for now.
The government's admission last week that it would take longer than planned to cut its deficit had prompted speculation among economists and in the press that a downgrade was all but inevitable.
"Moody's would likely downgrade France's government debt rating if the rating agency's confidence in the government's ability to undertake the necessary fiscal consolidation measures and structural economic reforms were to decline further," it said in a statement.
"Further deterioration in the government's fiscal metrics beyond the rating agency's current expectations would also likely lead to a downgrade of the rating," Moody's added.
Breaking the latest of many promises to EU partners, President Francois Hollande's Socialist government said last week that it would not be able to cut its public deficit as soon as planned because of weak growth and low inflation.
Largely flagged by the government in advance, the announcement has done little to dent investor demand for French debt, with expectations of further ECB easing helping to keep yields low on all euro zone government bonds.
France sold two-year bonds on Thursday with yields fractionally above zero, at 0.01 percent, and its five-year bonds also drew record lows.
"French debt is among the safest and the most liquid in the euro zone. It has a solid and deep investor base," French Finance Minister Michel Sapin said in a statement.
"This investor confidence is fed by a coherent economic strategy, which the government intends to pursue with determination," he added.
The government is hoping to revive growth with plans to phase out 30 billion euros ($38.48 billion) in payroll tax on companies over three years while wringing 50 billion euros in savings from the budget over the period.
With the economy struggling to kick-start a convincing recovery, the government now considers it will not be able to cut the fiscal deficit to an EU-agreed limit of 3 percent of economic output until 2017, instead of 2015 as previously planned.
Moody's threw doubt on that target, saying it expected the milestone to be reached only in 2018. It also forecast that France's government debt would top 100 percent of gross domestic product and only begin falling after 2018.
reuters.com
Moody's kept its rating on French bonds at Aa1, the second-highest level in its scale, saying the size and wealth of the euro zone's second-biggest economy, coupled with its currently ultra-low borrowing costs, justified keeping the rating for now.
The government's admission last week that it would take longer than planned to cut its deficit had prompted speculation among economists and in the press that a downgrade was all but inevitable.
"Moody's would likely downgrade France's government debt rating if the rating agency's confidence in the government's ability to undertake the necessary fiscal consolidation measures and structural economic reforms were to decline further," it said in a statement.
"Further deterioration in the government's fiscal metrics beyond the rating agency's current expectations would also likely lead to a downgrade of the rating," Moody's added.
Breaking the latest of many promises to EU partners, President Francois Hollande's Socialist government said last week that it would not be able to cut its public deficit as soon as planned because of weak growth and low inflation.
Largely flagged by the government in advance, the announcement has done little to dent investor demand for French debt, with expectations of further ECB easing helping to keep yields low on all euro zone government bonds.
France sold two-year bonds on Thursday with yields fractionally above zero, at 0.01 percent, and its five-year bonds also drew record lows.
"French debt is among the safest and the most liquid in the euro zone. It has a solid and deep investor base," French Finance Minister Michel Sapin said in a statement.
"This investor confidence is fed by a coherent economic strategy, which the government intends to pursue with determination," he added.
The government is hoping to revive growth with plans to phase out 30 billion euros ($38.48 billion) in payroll tax on companies over three years while wringing 50 billion euros in savings from the budget over the period.
With the economy struggling to kick-start a convincing recovery, the government now considers it will not be able to cut the fiscal deficit to an EU-agreed limit of 3 percent of economic output until 2017, instead of 2015 as previously planned.
Moody's threw doubt on that target, saying it expected the milestone to be reached only in 2018. It also forecast that France's government debt would top 100 percent of gross domestic product and only begin falling after 2018.
reuters.com
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