Core Ranking Reversal

- "The ranking in terms of economic growth between the two biggest euro area member countries has changed. While France has outperformed Germany on GDP growth for most of the time since the introduction of the EUR, we expect Germany to show higher GDP growth than France in coming years."
- "With less cyclical support, France faces a more difficult environment than Germany in which to reduce its general government deficit to 3% by 2013. In addition, after the likely implementation of the unpopular pension reform, the government is unlikely to introduce far-reaching austerity measures. Hence, the gap between the government debt-to-GDP ratio in France and Germany is likely to widen, creating pressure on sovereign bond spreads."
- "However, we are quite confident that France will meet its target to reduce the deficit-to-GDP ratio to 6% in 2011. Furthermore, France faces a less adverse impact from demographic changes than Germany, suggesting a less threatening outlook for public balances long term (J├╝rgen Michels, see page 2)."


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