France, Global Economy | featured news

Even as the euro zone periphery starts to spy some glimmers of hope, concern is mounting that Germany is drifting apart from other countries at the core of the single currency bloc, notably France.

Moody's Investors Service has downgraded France's government bond rating, citing the country's weak economic growth outlook and its exposure to Europe's economic crisis.

French industrialist Louis Gallois called for a patriotic effort to reverse declining competitiveness through shock therapy as he handed in a review on Monday which the Socialist government commissioned and is now under pressure to heed.

The new tax is expected to be formally announced in the government's first budget on 28 September, but that does not mean there is a sense of panic in France. This new tax will only hit very rich individuals and only for a year or two, to help bring down the government deficit.

French President Francois Hollande has set himself a deadline to turn around the economy by the end of 2014, but having hamstrung the effort with tax rises to meet deficit targets, economists doubt his growth goals will ever fly.

The euro zone's two largest economies avoided shrinking between April and June, but the resilience of Germany and France wasn't enough to prevent the currency bloc's economy as a whole from falling back into contraction.

French voters are choosing a new parliament Sunday that will determine how far Socialist President Francois Hollande can push for economic stimulus in France and around a debt-burdened, stagnant Europe.

Germany dismissed a French-led call for euro zone nations to issue common bonds, a day before a European Union leaders' summit which investors are looking to for new measures to counter the bloc's debt crisis.

Investors nervous about the changing political winds in Europe initially drove down the euro and sent stock markets falling across the region Monday morning, though markets were bouncing back later in the day following renewed signs of strength in the German economy.

There has been a great deal of austerity-bashing -- that is to say Germany-bashing -- this French election season. Buoyed by his success in the first round, Socialist candidate Francois Hollande declared last Thursday: "It is not for Germany to decide for the rest of Europe." Vowing to reset Europe on a growth path, he said, "we're not just any country, we can change the situation."