In a note, Citi discusses the fiscal consolidation measures being taken by France, and mostly gives the country a thumbs up, although it does say that the growth assumptions being made are still too rosy.
But this part really caught our eye:
The supplementary measures announced are also very important. The ratings agencies are likely to welcome the more rapid transition towards a higher retirement age as this will be beneficial for debt dynamics. And the additional measures constrain the room for manoeuvre of the next administration due to the framework of multi-annual budget planning required by EU law. We believe it would be almost impossible for a new government to renege on the ‘hard’ targets of balancing the budget by 2016, even if the policy mix could be adjusted between expenditure cuts and tax increases.
So millions of people are going to have to deal with a higher retirement age, not because of the markets thsmselves, but because the ratings agencies are likely to “welcome” it.
The power these agencies have, with their ability to deny a country a AAA rating, is quite astounding.
Now granted, as several have pointed out, the market doesn’t seem to think France is AAA, what with its widening spreads to Germany. But still, the fact that the letter grade becomes so important is disturbing.
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