In its announcement Friday that credit rating agency Standard and Poor’s (S&P) was cutting its rating on France’s debt for the second time in less than two years, the agency minced no words:
The downgrade reflects our view that the French government’s current approach to budgetary and structural reforms to taxation, as well as to product, services, and labor markets, is unlikely to substantially raise France’s medium-term growth prospects.
Moreover, we see France’s fiscal flexibility as constrained by successive governments’ moves to increase already high tax levels, and what we see as the government’s inability to significantly reduce total government spending....
In our view, the current unemployment levels are ... depressing longer term growth prospects.
S&P saw this coming back in January 2012, four months before Francois Hollande, the presidential candidate for the both the Socialist and Far Left Parties, took over as president of France. During the election campaign Hollande promised to revive the moribund French economy by doing even more of what had stalled the economy in the first placed. The steps he advocated included canceling previously enacted tax cuts and exemptions for the wealthy; raising the top tax bracket to 75 percent; reducing the retirement age for receiving full pensions from age 62 to 60; hiring 60,000 new teachers; funding 150,000 “mentors” to teach the unemployed new skills; imposing rent controls; and building 500,000 new homes annually for the poor and needy.
It didn't take long for the other two credit rating agencies, Fitch Ratings and Moody’s Investors Service, to see what these would do to France’s already staggering economy, and thus they reduced their ratings as well, in July and November, respectively.
Incumbent president Nicolas Sarkozy, whom Hollande ousted in May 2012, saw what was coming as well, criticizing Hollande’s proposed agenda, and claiming that it would bring about “economic disaster within two days of taking office.” It started two days after Hollande took office but it took a year and a half for the effects from that disaster to kick in.
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