French socialist revolution faces hardships

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It has been a year and a half since François Hollande was elected president in France. Upon entering his position, Hollande made a rather brave set of economic reforms, as he favored the increase of income tax over the prior plan to increase Value Added Tax. However, the decreased incentive to conduct business in the country had its toll on the country's bottom line. Half a year later, Hollande was forced to increase VAT, while providing corporations with tax benefits.

Last week marked a new low for the French socialist revolution, as rating agency Standard & Poor's announced cutting France's sovereign credit rating to "AA". S&P's announcement criticized Hollande's Government for incompetence of reducing its spending and supporting economic growth. Specifically, S&P called France's "fiscal stability" constrained by too high tax levels on one hand, and inflated Government expenditure on the other hand, which S&P believes to be out of control.

Adding insult to injury, France's Industrial Production output was published on Friday, revealing only a -0.5% Month over Month decrease in September, in addition to a worsening trade deficit. Pierre Moscovici, the French finance minister, commented in a statement that he regrets what he referred to as S&P's “critical and inaccurate judgment", while adding that “Never has a government carried out so many reforms in such a short time and in such a difficult economic environment”. Moscovici concluded that in spite of the rating cut, France's rating remains high compared to other world nations. Markets apparently shared the same view with as Moscovici, as France’s sovereign bonds continue trading at roughly the same prices throughout the day. 

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