French officials angrily rejected a charge by Britain's The Economist weekly on Friday that France was the "time-bomb at the heart of Europe" and a danger to the euro single currency, accusing the magazine of sensationalism. The Economist's front cover showed seven loafs of "baguette" bread bound together by a French tricolour with a lit fuse protruding from the centre.
Its main article raised concerns that Socialist President Francois Hollande's economic reforms are not ambitious enough, warning that financial markets could turn against France, and so could jeopardise the future of the euro. The government retorted that the Economist report did not take into account corporate tax rebates unveiled last week which amount to a 6 percent reduction in labour costs, a measure it believes will add jobs and reduce a ballooning trade deficit.
Public spending cuts announced in that package, along with existing budget measures, should add up to 60 billion euros in savings over Hollande's five-year term, the government says, an effort the Economist has not factored in. "Their analysis is outdated, it's not accurate anymore," said Thomas Philippon, an adviser to Finance Minister Pierre Moscovici. "Cutting 60 billion euros in five years is anything but easy and it's anything but timid."
Ministers slammed the report as one-sided. "Honestly, The Economist has never distinguished itself by its sense of even-handedness," Industry Minister Arnaud Montebourg told Europe 1 radio. "It is the Charlie Hebdo of the City," he said, referring to a French satirical weekly which drew criticism in September for publishing cartoons depicting a naked Prophet Mohammad.
Aside from doubts over the scale of structural reforms, EU officials and many economists are sceptical Hollande can hit his goal of cutting the 2013 public deficit to 3 percent of output. Failure to do so could prompt financial markets to demand higher yields for French bonds, which are currently around record lows of 2 percent on the perception that France is, along with Germany, a safe haven in the euro zone.
Moody's rating agency is due to update its view on France this month, raising the prospect of a second downgrade after France lost its AAA-rating with Standard & Poor's in January. Many economists believe, however, that another downgrade is already priced into the market and see traders loath to ditch French debt in favour of lower-yielding Bunds or riskier Italian or Spanish paper.
"What's keeping French yields low are the woes of Spain and Italy," said Nicolas Spiro at Spiro Sovereign Strategy. French public spending accounts for 56 percent of gross domestic product, the highest level in the euro zone, and public debt reached 90 percent of GDP this year. Hollande's deficit-reduction strategy is based two-thirds on tax increases, much of it on businesses, and one-third on spending cuts. The Economist's Europe editor, who wrote the special report, defended the weekly against accusations of being unfair.
Two previous cover stories this year accused France of being "in denial" about economic reality and called Hollande "rather dangerous", endorsing his presidential election opponent, conservative incumbent Nicolas Sarkozy. "The point of this cover and the article is to encourage France," John Peet told the newspaper 20 Minutes. "Other countries including Greece and Portugal have conducted many reforms. This is not yet the case in France."