PARIS (AP) â¿¿ France's government has shrugged off the latest downgrade of its credit rating, saying Tuesday that it just needs time for reforms to the sluggish economy to take root.
Socialist President Francois Hollande noted that markets barely budged on the credit rate cut by Moody's Investors Services, and said that was a sign the government should stay its course of gradual budget tightening. But he also used the downgrade to warn the French that the country can no longer avoid "the most difficult decisions" if it wants to preserve its "credibility."
Moody's stripped Europe's No. 2 economy of it of its prized AAA credit rating late Monday on concerns that its rigid labor market and exposure to Europe's financial crisis were threatening its prospects for economic growth.This is the second ratings downgrade to have hit France this year: Standard & Poor's agency lowered its score in January. The third leading agency, Fitch, still ranks France at AAA but warned it could still be downgraded. The downgrade, like S&P's before it, appeared to have a limited effect on the markets. France's CAC 40 stock index ended the day up 0.65 percent at 3,462 while the country's interest rate on the benchmark 10-year bond was up 0.07 percentage points to 2.03 percent. Germany's was up the same rate to 1.39 percent. Finance Minister Pierre Moscovici insisted that France's credibility remains strong and that the government's plan to reduce unemployment and restore growth would bear fruit. France has come under scrutiny as its â¿¬2 trillion ($2.5 trillion) economy has stagnated, with many leading French companies laying off workers. Meanwhile, Hollande has struggled to reassure economists that his attempts to revive the French economy will be successful. Hollande's administration has laid out a series of deficit-reduction targets, vowing to bring it in line with European rules next year. It has also unveiled a plan to improve the competitiveness of its economy, by giving companies â¿¬20 billion ($25 billion) in tax rebates, reducing red tape for businesses, and providing small companies with extra support to compete abroad.