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French report
by Euro Reporter
2014-10-13 09:43:16
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Ratings agency S&P cuts France's outlook to negative from stable

Ratings agency Standard & Poor's (S&P) cut its outlook for France to negative from stable on Friday, amid growing concerns about the strength of the country's economic recovery. Still, S&P affirmed France's AA/A-1+ rating.  France has been dubbed the "sick man" of the euro zone over recent months, after economic data which have continued to surprise on the downside. Gross domestic product (GDP) failed to expand during the second quarter of this year after stalling in the first, and is expected to have grown only slightly—by 0.2 percent—in the third quarter, according to the Bank of France.

"In our view, the French government's budgetary position is deteriorating in light of France's constrained nominal and real economic growth prospects," S&P wrote in its research update on the country released Friday. S&P last downgraded France in November 2013, when it cut its sovereign credit rating to AA. Last month, rival credit agency Moody's said it was keeping its Aa1 rating (the agency's second highest) on French government debt, but maintained its negative outlook.  S&P pointed to France's high per capita income and skilled workforce in explaining the affirmation of an AA rating. But the outlook revision "reflects our view of receding fiscal space for the French government in light of the economy's constrained real and nominal growth prospects against the background of policy implementation risk," S&P wrote.

France's finance minister, Michel Sapin, told CNBC as the S&P announcement came out that the change of outlook does not represent an issue with France, but is actually about the euro zone.  "Of course it is about France," Moritz Kraemer, who heads sovereign ratings for S&P, told CNBC in response to Sapin's comments. "We indeed think that the risks are increasingly tilted towards the downside, which has to do with a number of things. Some of them are home-made; others of them are indeed sort of a pan-European phenomenon."  Kraemer said S&P is "now quite doubtful" that France can hit its 3 percent 2017 deficit target. Before the news, Sapin said France had been missing important structural reforms, but that those are now underway.  These reforms are important and broad, Kraemer said, but the country's outlook was changed in part because "the implementation risks are actually quite significant." According to S&P, the outlook change signals that there is a "1-in-3 likelihood" that event would occur leading to a downgrade from the ratings agency.

France is worried about wannabe-jihadists

A studious 15-year-old pupil from the south of France, Adèle enjoyed biology and dreamed of saving lives. But she led a double life. In one Facebook identity she was just a teenaged girl. In the other she was Oum Hawwa, chosen by Allah to help "brothers and sisters" in Syria. Early this year Adèle failed to come home, flew out of Marseille and made it to Syria. Her family says she is now a hostage of jihadists. Such stories have become more common as France, home to Europe's biggest Muslim minority, struggles with the flow of would-be jihadists to Syria and Iraq. Bernard Cazeneuve, the interior minister, reckons 930 French citizens are either already there or trying to go. Another 36 have died fighting. Although on a per-head basis its jihadists are outnumbered by Belgian and Danish ones, France supplies the largest single contingent. Almost a fifth are female. Some entire families have gone.

Most French jihadists are recruited through one of two routes, says Dounia Bouzar, author of "They Sought Paradise, They Found Hell", a new book that traces the paths of those like Adèle. Young men, many of whom might have joined the police or the army and have "a tormented relationship with their virility" are, she says, seduced by the promise of a mission and a purpose free of Western lies. The appeal to young girls, by contrast, is often a humanitarian desire to help innocent children; many female recruits hoped to be nurses, doctors or social workers. A striking feature of this new wave, says Mr Cazeneuve, is its "self-service" nature. Individuals reach jihadist recruiters in a few internet clicks or on social media, and can be on a low-cost flight via Turkey in no time. Jihad also holds appeal for middle-class teenagers and non-Muslims. The government says almost half of French jihadists were previously unknown to the police, and 20% are converts. Of the 130 families who have contacted an early-warning centre set up by Ms Bouzar, 70% are non-believers, few have much knowledge of the Koran or Arabic, and many come from middle-class families.

France has long been unapologetically tough on terrorism, and the police have sweeping rights to detain and charge suspects. But the French have felt disarmed in the face of the casual departure of youngsters on cheap flights to Turkey. The wake-up call was the arrest in Marseille of Mehdi Nemmouche, a Frenchman now in custody in Belgium, who is suspected of shooting dead four people at a Jewish museum in Brussels in May after fighting for Islamic State (IS) in Syria. Mr Cazeneuve is now pushing a tough new counter-terrorism law through parliament. It turns individual terrorist intent into a criminal offence (the current law requires "association" with others) and makes it possible to stop suspects from leaving France if there is "serious reason" to believe their trip is linked to terrorist activity. Although this gives counter-terrorism authorities considerable preventive powers, and civil-liberties groups have criticised some provisions, the bill enjoys broad cross-party support. The main reason for this political consensus is that the French are on high alert over the terrorist risk at home, thanks to the return of people like Mr Nemmouche. France's participation in air strikes against IS in Iraq has made it a target. In September Hervé Gourdel, a Frenchman, was beheaded in Algeria by a terrorist group linked to IS. Some 119 terrorist suspects have been arrested in France, 81 charged and 56 jailed. When asked by a recent visitor what keeps him awake at night, Manuel Valls, the prime minister, replied: terrorism.

PM Valls urges Europe to respect France, and its budget

French Prime Minister Manuel Valls said on Saturday that it is up to France to decide on its budget and that Paris should be treated with respect by its European partners. European Union officials are trying to persuade France to change its 2015 draft budgets before they are submitted to the European Commission next week, to avoid their probable rejection, EU sources said on Friday.

Valls urged its European partners to take into account the "reality" and economic crisis in the euro zone. "It's us who decide on the budget," Valls told reporters during his trip to Blois, broadcast by TV channels. "Nothing today can lead to ... demands for France to review its budget. This does not happen like this. France should be respected, it's a big country".

France laid down the gauntlet to EU partners with a 2015 budget setting out how it would bring its borrowing back to within EU limits two years later than promised, a retreat it blamed on a fragile economy. "I call for everyone to keep sang-froid and respect, especially when it comes to European partners ... when they speak about France", Valls

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