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France’s credit rating downgraded by Moody’s

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France, Europe’s second largest economy, has had its AAA credit rating downgraded by the rating agency Moody’s. The rating now stands at AA1, with a negative outlook, and this downgrade follows a similar move by Standard & Poor’s back in January.

Moody’s says France is losing competitiveness and is uncomfortably exposed to the financial troubles of weaker countries in southern Europe.

The French government is dismissing the news, saying the ratings firms need to give economic reforms time to kick in.

The downgrade couldn’t have come as much of a surprise, says BBC’s Christian Fraser, especially in light of the earlier S&P downgrade.

Francois Hollande was elected back in May. Since then, criticisms of his administration have centered around the idea that needed reforms are still not being pushed through. 

In recent months, France has also benefitted from very low interest rates — but that could change. 

Investors have been pulling money out of many southern European countries and seeking refuge in France and Germany. But both countries are also shouldering the costs of bailouts for weaker economies in the region.

“On top of all the financial, economic concerns that France has at the moment,” points out Fraser, “they’re exposed to the issues in the euro zone and they’re carrying the weight of the others.”

It’s been a rough first six months for the Socialist government in France, and the downgrade comes on the heels of a “rather damning front page” of The Economist, notes the BBC’s Fraser.

Calling that nation the “time bomb at the heart of Europe,” the story in The Economist touches on the concerns others, like Germany, have about France. In fact, the publication has received some heat lately for fanning the flames of the problems in France.

Are the claims warranted? We went to Sophie Pedder, Paris Bureau chief for The Economist.

“I think the concern is about what has been a long-term loss of competitiveness in the French economy, compared with Germany,” she says. Over the past ten years, she argues, the economy there has been slipping — in everything from unemploymnet to public debt.

One of the biggest concerns that she sees is the level of public spending going on in France.

“[Public spending’s] actually higher as a share of the economy than even in some of those countries that you think of as being real high-spending welfare states like Sweden,” she adds. “I think France has really yet to get to grips with this.”

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