France missing its budget deficit target again is negative for its creditworthiness and that of the wider eurozone, Moody’s has warned.
French finance minister Michel Sapin recently admitted that the country would not be able to bring its budget defict down to the target of 3.8 per cent of gross domestic product, after halving its economic growth forecast for 2014 to 0.5 per cent, FastFT reports.
This could have consequences for Moody’s assessment of France’s credit rating, as well as underlining the wider problems the euro area countries face in enforcing fiscal discipline, the rating agency said in a report.
“These difficulties in executing the government’s multi-year fiscal programme, and the increasing likelihood it will fail to do so, are credit negative for France.
“The sovereign’s fiscal shortfall and revisions illustrate the continuing challenges facing the euro area and will further test the monetary union’s political will to enforce fiscal discipline in a challenging economic environment.
“They will also challenge the strength of the European Union institutions created to ensure compliance with fiscal consolidation commitments.”
Moody’s currently predicts that France’s deficit will be 4.2 per cent of GDP this year, and 3.6 per cent next year, despite fiscal surveillance mechanisms put in place to compel eurozone governments to improve budgetary discipline.
“Not for the first time, France will test these new governance frameworks. France has already received one deadline extension to meet the target of reducing its general government deficit to 3.0 per cent of GDP. It could now be forced to comply with its fiscal commitments, but we think this is unlikely.
“A decision to allow a further target breach by a large core country would be credit negative for the euro area; its fiscal governance mechanisms would have failed an important test.”
