October 20, 2020

French Budget Plan Calls for €1 Billion in Spending Cuts

The plan, which would continue a freeze on new spending for a second year in 2012, will help to bring the budget deficit down to 3 percent of gross domestic product in 2013, 2 percent in 2014, and to 1 percent in 2015, the government said.

That should reduce the debt from 87.4 percent of G.D.P. next year to 87.3 percent in 2013, it said, still well above the European Union limit of 60 percent.

“Reducing the public debt is a priority,” the president’s office said after the cabinet approved the budget proposal. “It starts with cutting the public deficit. This budget confirms the inviolable nature of the medium-term trajectory to restore balanced budgets.”

Mr. Sarkozy is seeking to shrink the budget — after debt and pension payments — for the first time since 1945. With the French economy stagnating and members of his inner circle caught up in various scandals, he could face a strong challenge from the Socialists in the May 2012 presidential election.

The left gained control of the Senate on Sunday for the first time in decades, meaning the budget could be in for a frosty reception in that body, though the lower house, controlled by the government, has the decisive vote.

The shock of the United States losing its AAA rating from Standard Poor’s this summer and the sell-off of French banking shares that has accompanied the intensification of stress on the euro zone have focused attention on French national finances, despite assurances from the major credit ratings agencies that France’s AAA rating remained “stable” for now.

The government in August said it would seek €10 billion, or $13.6 billion, more in revenue next year, and cut spending by another €1 billion. Mr. Sarkozy is raising corporate taxes, imposing a surtax on incomes of €500,000 or more annually, and increasing taxes on soft drinks, liquor and cigarettes.

The government said it would also continue its policy of hiring only one new civil servant for every two who retire.

The task of improving the public accounts is made all the more difficult by the possibility that the crisis in the euro zone will bring a recession. The plan announced Wednesday assumes 2012 economic growth of 1.75 percent, the level to which the government had revised down this year’s outlook, but the French economy was essentially at a standstill in the second quarter.

Still, France has some advantages, the statement noted, including relatively low household debt and high savings rates.

Article source: http://www.nytimes.com/2011/09/29/business/global/france-announces-sharply-reduced-budget-for-2012.html?partner=rss&emc=rss

Asian Markets Dip Further After Moody’s Downgrades French Banks

Mounting worries about the exposure of the three leading French banks — Société Générale, Crédit Agricole and BNP Paribas — to Greece and their ability to handle a potential default by Greece on its debt had sent the stocks of all three financial institutions sharply lower in recent days.

On Wednesday, Moody’s downgraded its ratings for Société Générale and Crédit Agricole, citing their exposure to the Greek economy and the fragile state of bank financing markets. It kept BNP Paribas under review for a possible downgrade.

The downgrades had been widely anticipated by investors but nevertheless sparked knee-jerk drops in the euro and Asian stock markets, both of which had already been on the back foot earlier in the Asian trading day.

The euro, which had been hovering at around the mid-$1.36 level before news of the downgrades, slipped to $1.36 soon afterward.

In Japan, the Nikkei 225 index closed down 1.1 percent, the benchmark index in Australia ended 1.6 percent lower, and in Taiwan, the Taiex lost 2.2 percent.

In South Korea, where the market had been closed on Monday and Tuesday for a holiday, the Kospi dropped 3.5 percent.

The Hang Seng in Hong Kong and the Straits Times in Singapore were 1.5 percent and 0.5 percent lower, respectively, by midafternoon.

Société Générale, BNP Paribas and Crédit Agricole are considered integral actors in the French economy, lending billions of euros to businesses and individuals, and the government has said it will never let them any of them fail.

Officials have said that the French banks are adequately capitalized and currently do not need the government to provide them with additional funds.

Moreover, Société Générale announced Monday that it would raise new cash by selling assets, and BNP Paribas, the largest French bank by assets, followed suit with a similar announcement on Wednesday.

In a presentation
on its Web site, BNP said it planned to cut its risk-weighted assets by about €70 billion, or $95.7 billion, and improve its Tier 1 capital ratio — a common measure of banks’ strength — to 9 percent by the start of 2013.

Article source: http://www.nytimes.com/2011/09/15/business/daily-stock-market-activity.html?partner=rss&emc=rss

Moody’s to Review French Banks Over Greece Exposure

PARIS — French banks were punished Wednesday for their exposure to Greek debt after Moody’s Investors Service placed three of the largest on review for a possible downgrade.

Moody’s cited “concerns” about the exposure of BNP Paribas, Société Générale and Crédit Agricole to the Greek economy, either through holdings of government bonds or loans to the private sector there, directly or through subsidiaries operating in Greece.

It said the reviews would also examine “the potential for inconsistency between the impact of a possible Greek default or restructuring and current rating levels.”

After the announcement, shares in BNP Paribas and Société Générale were both down 1.6 percent, and Crédit Agricole shed 1.3 percent. The CAC 40 index in Paris was relatively flat at midday. The euro stood at $1.4354 from $1.4441 late Tuesday.

According to data from the Bank for International Settlements, French banks could potentially lose more from a collapse of Greek banks and a sovereign default than other countries, including Germany, the United States and Britain.

The French government has consistently opposed plans to expose private investors to any restructuring of Greek debt, despite a strong push led by Germany. Although it has never said as much publicly, the assumption is that Paris has taken that stance to protect its banks.

Crédit Agricole controls Emporiki Bank of Greece and Société Générale owns a majority of the Greek lender Geniki Bank. BNP Paribas does not have a local unit in Greece, but is at risk from direct holdings of Greek government debt, Moody’s said.

The French economy minister Christine Lagarde did not refer to the Moody’s announcement in a statement Wednesday following the conclusion of a regular International Monetary Fund assessment of France’s economy.

But she said that the fund had given a “positive” assessment of the domestic economy and the financial system, including moves to impose international capital adequacy standards. She added that French lenders needed to remain “vigilant” and continue applying supervisory standards.

In its statement, Moody’s stressed that there were “potential mitigants” to the concerns about Greece, including the French banks’ strong overall financial profiles, substantial scale and earnings diversification.

It added that the examinations of Crédit Agricole and BNP were unlikely to lead to downgrades of more than one notch. Société Générale’s debt and deposit ratings could be cut by as much as two levels because it has been more reliant on government support than the other lenders, Moody’s said.

A meeting of euro area finance ministers broke up Tuesday night without reaching a deal for the second financial rescue package for Greece. The ministers are expected to meet again Sunday, but before that, the French president, Nicolas Sarkozy, will visit the German chancellor, Angela Merkel, in Berlin on Friday.

Paris is currently backing the position of the European Central Bank, arguing that a rescheduling must be avoided at all costs and that a voluntary private-sector “rollover” of maturing debt should instead be considered. Berlin is pushing a more stringent approach in which old debt would be swapped into new 7-year bonds — something that credit agencies are more likely to interpret as a “credit event,” or default.

“We are closely monitoring the risks that would likely result from a Greek default scenario,” Moody’s said, including “the potential impact on weaker countries, the capital markets, and funding conditions, and are taking those risks into consideration in our ratings of banks across the euro zone.”

Moody’s also said that exposure to Greece would also be included in an ongoing review for possible downgrade of Dexia, a French-Belgian lender.

In a study released last month, another agency, Fitch Ratings, said that Crédit Agricole was the most vulnerable French bank, with around €25 billion in private and public sector liabilities Greece. Both BNP and Société Générale had exposure of around €6 billion to €8 billion, it said.

“At this stage Fitch does not envisage any rating action on French banks purely as a direct result of their exposure to Greek risk,” it said at the time. “French banks also have very limited direct exposure to Portuguese and Irish risk.”

Article source: http://www.nytimes.com/2011/06/16/business/global/16banks.html?partner=rss&emc=rss

E.U. Presses Ahead With Bailout Talks Despite I.M.F. Chief’s Absence

BRUSSELS — Despite the absence of Dominique Strauss-Kahn, the managing director of the International Monetary Fund, European finance ministers on Monday approved a bailout package for Portugal and debated new aid for debt-strapped Greece.

But the scandal engulfing Mr. Strauss-Kahn cast a long shadow, depriving ministers of the advice of a powerful and experienced European with a pivotal role on the global financial stage.

A former French economy minister, Mr. Strauss-Kahn was a member of the political generation that created the euro and someone who had the respect of the euro zone’s most senior politicians and officials.

And, though most diplomats expected him to leave the I.M.F. soon anyway to run for president of France in elections next year, the thought that he might now depart under a cloud increased concerns that the cozy arrangement under which a European gets to lead the fund was in doubt.

European officials insisted that the absence of Mr. Strauss-Kahn, who was being replaced in Brussels by Nemat Shafik, a deputy managing director at the I.M.F., would not affect efforts to control the debt crisis.

E.U. finance ministers said Monday that they agreed “unanimously” to grant aid worth a total of €78 billion, or $111 billion, to Portugal under a three-year program jointly administered by the European Union and the I.M.F.

In a statement, the ministers said the package would “address in a decisive manner the fiscal, financial and structural challenges of the Portuguese economy,” and would “thereby also help restore confidence and safeguard stability in the euro area.”

It added that the Portuguese authorities would encourage private investors “to maintain their overall exposures on a voluntary basis.” Although it was unclear how that encouragement would be offered, one possibility would be special guarantees to those who agreed to retain Portuguese bonds.

No interest rate was specified on the loan portion of the Portuguese package, though the country was expected to pay a little less than 6 percent.

Earlier on Monday, Amadeu Altafaj Tardio, a spokesman for the European Commission, the executive arm of the European Union, sought to reassure nervous markets that all parties to the talks were conducting business as usual despite the absence of Mr. Strauss-Kahn.

“There’s absolutely no question: Decisions which are under way will not be impacted, and this will not have an impact on the programs being applied,” Mr. Altafaj Tardio told reporters. The I.M.F., he added, “remains a strong institution as it always has been, and there will be full continuity.”

But even with Mr. Strauss-Kahn at the helm, Europeans have felt a hardening of attitudes at the I.M.F., where concerns have grown in North America about Europe’s internal policy divisions over the debt crisis.

Meanwhile, some in the developing world are concerned about the amount of effort the I.M.F., which has traditionally devoted resources to their problems, is having to concentrate on Europe, said an E.U. diplomat who was not authorized to speak publicly.

Chancellor Angela Merkel of Germany said Monday that it made sense for Europe to keep the top job at the I.M.F. for now, given its role in tackling the euro zone crisis, Reuters reported from Berlin. However, she said it was not yet time to discuss a successor.

“Generally, we know that in the medium term developing countries certainly have a claim both to the post of I.M.F. chief as well as World Bank chief,” Mrs. Merkel said. “I believe however that in the current phase, there are good reasons for Europe to have good candidates ready.” That view was echoed in Brussels by Didier Reynders, the Belgian finance minister. “It would be preferable if we continued to hold these posts in the future,” he said.

The new mood of uncertainty coincides with a change of leadership at the European Central Bank, with Mario Draghi of Italy all but certain to succeed Jean-Claude Trichet of France as president. Mr. Draghi’s nomination was expected to be formally proposed at the meeting Monday.

As a former French government minister, Mr. Strauss-Kahn is a strong presence who feels at home in the complex world of E.U. policy making.

Article source: http://feeds.nytimes.com/click.phdo?i=896b39305859b2da6fd43922db0aaed4

DealBook: France Sees Surge in Foreign Investments

Christine Lagarde, France's economy minister.Munshi Ahmed/Bloomberg News Christine Lagarde, France’s economy minister, says 2010 was a “record-breaking year” for foreign investment.

PARIS — The French economy is popularly viewed as sclerotic and sheltered, but government data released Monday — as well as the testimony of a number of global chief executives — suggest the opposite.

Italians, though, might beg to differ.

A report from the government’s Invest in France Agency showed that the number of foreign direct investments rose 22 percent last year from 2009, to 782 projects creating 31,000 jobs. It was the highest number in 15 years and came after stagnation for the two previous years.

Christine Lagarde, the economy minister, described 2010 as a “record-breaking year” for investments, most of which came from Germany, followed by the United States, Britain and Italy.

She said the government had become more attentive to the needs of foreign-owned companies and had improved the investment environment through means including the creation of research tax credits; the elimination of a local business tax; the establishment of a tax-free overtime system; the investment in infrastructure, especially around Paris; and the promotion of so-called centers of excellence where companies in related fields can work side by side.

And at a reception Monday in Paris, a number of foreign executives joined Ms. Lagarde in extolling the virtues of France as more than a vacation destination.

One of those — Robert Lu, chairman of China National BlueStar, a chemical company — said he had found France far more welcoming than Germany. “The French government are very open to attract investment,” he said. “That is the difference compared with Germany.”

He said his company had invested 200 million euros, or about $280 million, in France over the past four years and intended to spend an additional 130 million euros this year.

But Italian executives have long complained that France has thrown up roadblocks to their efforts to expand into France, and a battle now going on between companies from the two countries has revived memories of past clashes.

Lactalis, a privately held company based in Normandy and the largest cheese and milk producer in Europe, has been accumulating shares in the giant Italian food company Parmalat. And now Lactalis is starting to encounter barriers to extending its control. Lactalis said last week that it planned to buy a 15.3 percent stake in Parmalat from a group of activist investors and then to increase its stake to 29 percent.

Soon after, however, it emerged that the Milan prosecutor was investigating Parmalat’s recent stock movements. In addition, Rome has issued a decree allowing Parmalat to delay a shareholder meeting scheduled for April, during which Lactalis was expected to consolidate its control. The Italian government has also called for an “Italian solution” for Parlamat, and a consortium of domestic companies is being pulled together to make a bid for the company.

The defensive stance stems from the belief among many Italian executives and politicians that when it comes to investment and mergers involving France, the traffic is all one way.

In 2006, the French government engineered a merger between the water utility Suez and Gaz de France to prevent Suez from being acquired by Enel, the Italian energy giant.

That same year, BNP Paribas of France bought Italy’s Banca Nazionale del Lavoro. In 2009, Air France-KLM took a minority stake in the Italian flag carrier Alitalia. And this month, LVMH Moët Hennessy Louis Vuitton, the French luxury goods conglomerate, announced that it would buy the Italian jeweler Bulgari.

Several other French companies, including the electric utility EDF and the insurance company Groupama, are also looking into expanding their holdings in Italian rivals.

Ms. Lagarde denied there was an agenda at work. “We haven’t barred any Italian from investing in France,” she said. “There might be frustration regarding the level of foreign direct investment in flagship companies, and that is perfectly understandable. It’s a matter of really having a dialogue.”

But there remains a lingering sense among many analysts that France does not always open its arms to foreign investors, whether from Italy or elsewhere, if it means giving up control of well-known French companies.

In 2005, rumors that PepsiCo would bid for Danone, the big French food and drink company, set off a backlash, with Dominique de Villepin, then prime minister, calling for “economic patriotism.”

A few months later, the French government published a list of 11 sectors deemed vital to national security, and said it would protect companies in those areas from foreign takeovers. The list includes casinos. PepsiCo never made a bid.

In 2009, Areva, the state-controlled French nuclear company, sold its electrical grid business to a group of French companies rather than to General Electric of the United States and Toshiba of Japan, even though the foreign companies had offered sweeter deals.

Ms. Lagarde said that when it came to foreign takeovers, France differed from other countries only in its approach. “Compared with other countries we are specific, we don’t have leeway, we don’t have discretion,” she said.

It is not only French data that show that the country has become a top player in global investment flows. According to the United Nations Conference on Trade and Development, in 2009 France ranked third globally for foreign investment inflows, behind the United States and China. It slipped to fourth place in 2010, when Hong Kong pulled ahead.

Data from the U.N. body also show France as the second-largest provider of foreign direct investment in 2009, at $147 billion, ranking behind the United States, at $248 billion, but ahead of Japan, Germany and China.

Among the foreign companies that have expanded in France in the past year are Amazon.com and General Electric, Bertelsmann of Germany and Nestlé of Switzerland.

While France retains a reputation for a rigid labor market, many of the executive said Monday that this was often outweighed by positive factors, including a large domestic market, low-cost energy, good infrastructure and well-trained workers.

“We decided to stay here for the full picture,” said Luiz Fuchs, chief executive of the European operations of Embraer, the Brazilian aircraft company, which has been operating in France for almost 30 years. “Yes, we would like to have more flexible labor laws, but I think the overall picture fits very well.”

Hans-Paul Bürkner, chief executive of the Boston Consulting Group, said most of Europe, not only France, “has a challenge” and must overcome the “mentality” of protecting old jobs rather than creating new ones.

“You may, with flexibility, lose some jobs short term, but in the long term you create more opportunities,” he said. “We have to overcome that dilemma.”

Stephen A. Schwarzman, chief executive of the private equity firm Blackstone Group, said he would like to hold more French assets. “It’s not the easiest place to buy,” he said. “It’s a good place to own.”

He estimated that France’s labor costs were lower than those of Germany, where “they take plenty of vacation and they seem to do quite well as a manufacturing economy.”

Article source: http://dealbook.nytimes.com/2011/03/28/france-sees-surge-in-foreign-investments/?partner=rss&emc=rss