France should go 'at own pace': Finance minister

French outlook downgrade a euro zone issue: Fin Min
French outlook downgrade a euro zone issue: Fin Min   

France's finance minister has defended his country's apparent lack of speed in implementing reforms, saying each country needs to "continue at its own pace".

Germany, often dubbed the "engine of Europe" is able to "do things differently" because it implemented reforms a long time ago, Michel Sapin told CNBC after France's credit outlook was cut to negative on concerns of its economic recovery.

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France's downgrade was not country specific and rather a euro zone wide issue, he said.

Nonetheless, ratings agency Standard & Poor's (S&P) cut its outlook for France to negative from stable on Friday, on fears its public finances cut deteriorate further beyond 2014.

Francois Hollande, France's president speaks to the media as he arrives for the European Leaders summit at the European Council headquarters in Brussels,
Bloomberg via Getty Images
Francois Hollande, France's president speaks to the media as he arrives for the European Leaders summit at the European Council headquarters in Brussels,

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"We believe that...a recovery of the French economy could prove elusive," S&P said in a statement.

The agency re-affirmed France's rating of AA/A-1+, which it last downgraded in November 2013.

"We need to make sure that the pace of our fiscal adjustments is in line with the low growth rates and each country needs to take that into account. Germany implemented reforms a long time ago, which allows it to do things differently, but each country needs to continue at its own pace with taking into account this world phase," Sapin told CNBC.

"S&P has changed its outlook on a lot of European countries recently, so it's all over the euro zone, it's not country-specific. We have maintained our double A rating. It's the outlook that has changed on many countries and this is why I was saying earlier, it's not a matter of looking at France in isolation," he said.

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But head of sovereign ratings for S&P, Moritz Kraemer said the risks in France are increasingly tilted towards the downside and some of its issues are in fact country specific.

"Of course it is about France…Some of them (the issues) are home-made, others of them are indeed sort of a pan-European phenomenon," Kraemer told CNBC.

France submitted their 2015 draft budget to the European Commission, the European Union's executive arm, this month. But the commission may ask France to make changes to better reflect the country's deficit reduction obligations, according to reports.

Sapin said the budget deficit will increase for the first time in five years last month, reaching the equivalent of 4.4 percent of gross domestic product in 2014 instead of the 3.8 percent agreed earlier with the European Commission.

France was to reduce its budget shortfall below the EU ceiling of 3 percent of GDP by the end of 2013, but in June 2013 EU ministers granted it an extra two years, until 2015, because of a recession in the euro zone.

The French government has now said it will reduce its budget deficit to below the EU threshold of 3 percent of GDP by 2017, two years later than promised.

Socialist President Francois Hollande's approval rating is at an all-time low in some opinion polls due to public anger over unemployment, economic stagnation, public spending curbs and resistance to structural reforms.

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When asked whether France would be forced to revise its 2015 budget, Sapin said he was focused on the euro zone as a whole rather than just France.

"France is facing its responsibilities. We worked on lowering the employment tax for companies and we are funding all of that by fiscal savings and this is something that's never been done to this extent before in France. So France is taking on its responsibilities and is doing so in the framework of collective responsibility taking in the euro zone," he said.

"It's a euro zone issue and the euro zone as a whole it needs to regain a stronger growth to face today's challenges," he added.

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