Two years ago, the French government lost its precious AAA bond rating from Standard and Poor’s. Last week the agency cut the beleaguered nation’s credit rating again, this time from AA+ to AA.
As recently as August, French President Francois Hollande claimed that “recovery is here.” The recent move by S&P sparked a furious reaction in Paris, with the Finance minister Pierre Moscovici claiming: “I deplore certain judgments that, I think, are inexact criticisms. They underestimate the ability of France to transform itself, to right itself.” This may be, but it isn’t what the data or the government’s actions suggest.
Indeed, increased taxes and regulations are stifling job creation and businesses are either leaving the country or striking in protest. This is the natural way that a market tries to “transform itself, to right itself”, to borrow Mr. Moscovici’s words. Money, people and goods go to where they are treated best. The French government keeps demonstrating that France is not such a country.
S&P blamed the downgrade on “‘successive government’ moves to increase already-high tax levels and ‘the government’s inability to significantly reduce total government spending’.”
If the French government wants to be angry with these recent events, it has no one to blame but itself. Keep pursuing these policies and sooner or later the market will respond. Mr Hollande should take this as yet another warning that his economic polices are failing, and that France will continue to see its might diminish as long as he continues waging his war against the country’s businesses and citizens through high taxes and onerous regulations.