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France’s poor economic outlook is Europe’s next problem

In November, soon after France and Belgium were forced to pump another 5.5 billion euros into bailed out lender Dexia, the ratings agency Moody’s stripped France of its AAA sovereign debt rating. The interesting bit was that Moody’s maintained its negative outlook. The ratings agency reckons France has poor longer-term economic growth prospects and a poor fiscal outlook. According to recent data, the outlook is still just as dim, probably worse.

I would also add that France has a poorly capitalised banking system and a frothy housing market. In my view, it is not inconceivable that after a few more rounds of bailouts and austerity-enlarged deficits, France could be in the 120-130% government debt to GDP range that Italy is now in. And where Italy’s problems are related to demographics and high real effective exchange rates, making the country look like a less efficient Germany, France adds in the housing and banking problems that make it look more similar to Spain.

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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

1 Comment

  1. David_Lazarus says:

    The symptoms were clear all the way back in 2008 when it became clear who had all the loans been issued by. I still think that Germany’s banks will eventually come into target as a serious problem.