The French Death Rattle

Moody’s announcement in November that it had downgraded France’s sovereign-credit rating implies that the government's response to calls for a "competitiveness shock" was inadequate. In fact, Moody's negative verdict barely scratches the surface of France’s predicament, which is rooted in the prejudices of its governing elite.

PARIS – Moody’s announcement in November that it had downgraded France’s sovereign-credit rating by one notch from its AAA rating prompted one blogger to poke fun at rating agencies’ tendency either to get things completely wrong or to recognize suddenly a crisis that had long been staring them in the face. The blogger joked, “If this recognition by a rating agency that France has problems is an example of the first failing, a recovery must have begun; if it is an example of the second failing, the country faces a dire reckoning.”

French President François Hollande’s government claims to have awoken to the threat. In a recent interview, Finance Minister Pierre Moscovici likened the measures being undertaken to reduce the country’s debt burden and restore competitiveness to a “Copernican revolution...because these choices were not clear for a French government or for a center-left government.”

As proof of this new realism, the government has been trumpeting its response to the set of policy recommendations that an expert panel led by the business executive Louis Gallois presented two weeks before the downgrade. The response is centered on a payroll-tax cut, which will be offset by spending cuts and a higher value-added tax.

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