Bravo! IMF Contradicts EU as It Praises France

Tuesday, 4 Jun 2013 | 5:35 AM ET
Patrick Aventurier | Getty Images

The International Monetary Fund (IMF) has praised France's reform efforts in a review of the country which appears to be in stark contrast with the European Commission's comments last week.

In its latest consultation on France, the IMF said it should continue with its economic reforms in the medium term, but added: "Following three years of substantial fiscal adjustment, there is scope to moderate the pace of consolidation going forward, provided the effort is concentrated on the expenditure and backed by continued structural reforms."

(Read More: EU Criticized for 'Pretend and Extend' on Austerity)

This view appears to contrast with that of the European Commission (EC), which last week said France must start to reform its pension system, rein in public spending and cut labor costs in return for being given two extra years to bring down its budget deficit.

EC President Jose Manuel Barroso said it requirements of France were "very demanding." It forecast that the country's unemployment rate would increase to 10.9 percent in 2014 - contrary to the government's promise of halting the rising trend by the end of this year.

The IMF was also positive about the country's economy more broadly, praising its "first rate" firms, at a time when business leaders in France have expressed their frustration with a lack of supportive measures for businesses.

(Read More: 'Time is Running Out,' Asset Manager Tells Hollande)

"France benefits from a number of structural strengths which, in a more supportive environment, could provide a substantial impulse to growth," the IMF said. "The French economy can also rely on a high household saving rate, first rate global enterprises, positive demographics, a strong scientific research capacity, and high quality public infrastructure."

French President Francois Hollande was recently pressured into dropping a plan that would cap executive pay - a move which was widely viewed as an attempt to placate business leaders. The high-profile change of heart followed another to decision to ditch a proposed 75 percent top tax rate on high earners.

(Read More: French Charm Offensive: Too Little, Too Late?)

The IMF praised France's banks for making good progress in repairing their balance sheets.

"The balance sheet repair of banks has continued at a sustained pace and overall risks to financial stability have abated considerably. Banks have achieved their deleveraging objectives without engendering a credit crunch and are well positioned to meet Basel III capital requirements well ahead of time," the fund said.

However ratings agencies Moody's said: "French banks will continue to face difficult operating conditions in 2013, amid recessionary trends in Europe." It maintained a negative outlook on the French banking sector earlier this year, along with Standard & Poor's.

(Read More: EU Gives France Leeway as It Reprimands Belgium)

By CNBC's Jenny Cosgrave; Follow her on Twitter @jenny_cosgrave.


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