BackFrench debt downgrade unjustified: IMF chief economist
The situation in France isn't rosy, but not as as bad as it is sometimes portrayed : Blanchard
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Frankfurt : The recent decision by debt rating agency Standard & Poor’s to downgrade French sovereign debt was not justified, the International Monetary Fund’s chief economist said in a newspaper interview Tuesday.
“Even if France hasn’t fully recovered yet, I don’t see any substantial risk -- or even an increased risk— that it won’t be able to service its debt," Olivier Blanchard told the daily Sueddeutsche Zeitung.
“So, yes, in this sense I do think that the downgrade wasn’t justified," he said.
“The situation in France isn’t rosy, but not as as bad as it is sometimes portrayed," Blanchard said, noting that France had significantly reduced its public deficit this year.
Earlier this month, S&P cut its rating on French sovereign debt by one notch from “AA+" to “AA".
Blanchard also came to the defence of Germany, which is under fire from its European partners over its high current account surplus.
“Perhaps I’m more German than you are," the 64-year-old Frenchman told the newspaper. “But I don’t see it as self-evident that Germany must reduce its current account surplus."
Germans should ask themselves the question why their investment ratio is so slow, Blanchard said.
“Are there good public investment projects that are worth financing? If the answer is ‘yes´, then more money should be invested. This would lead to a lower surplus and Germany would feel better," Blanchard argued.
He rejected criticism that the German surplus is putting the brakes on growth in other countries.
“Germany’s surplus doesn’t have much to do with the crisis in Spain," he said.
“There are better ways for Germany to help other countries in Europe. It can support the European Central Bank’s monetary policy. It can help set up a banking union and stabilise the banks in peripheral countries," the economist said.
Both the United States and the EU have taken a shot at Germany over its surplus recently, arguing that Europe’s biggest economy needs to boost domestic demand and so help its EU partners rather than continue to rely mostly on exports for growth.
Long the envy of its European Union partners for its strong public finances and powerful economy, Germany runs a huge trade surplus as one of the world’s top exporters with China and the United States.
But Berlin’s response has been prickly, dismissing the criticism as “incomprehensible," arguing that the high surplus reflected the competitiveness of German firms. AFP
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