October 02, 2012

Mellon Capital Report Highlights French Challenge of Stimulating Growth and Meeting Austerity Targets


Report from BNY Mellon Investment Manager Highlights Need for Government to Remain Focused on Economic Recovery

SAN FRANCISCO, October 2, 2012 — France's new government is likely to face significant challenges in delivering the anti-austerity policies under which it was elected, while also adhering to euro area budgetary targets and returning the economy to more sustainable and robust growth, according to a white paper from Mellon Capital Management Corporation, the San Francisco-based global multi-asset manager for BNY Mellon.

The white paper, France: Is the Core At Risk?, highlights the difficulties the country faces by noting that the net external investment position is negative, economic forecasts are expecting weak growth, and the country has had budget deficits for decades.

The report also cites France's large public sector and a labor force that has a high reliance on government-funded employment. 

"At the moment, French debt is enjoying a safe-haven status within the Eurozone," said Vassilis Dagioglu, managing director, head of asset allocation portfolio management of Mellon Capital. "However, the long-term ability of France to manage its debt boils down to whether the government can rein-in its budget deficits while generating enough growth in its gross domestic product.  In our view, this deficit reduction is necessary to maintain or even reduce the sovereign debt load." 

The Mellon Capital report cites France's need to achieve net savings of between six to 10 billion euros this year and 33 billion euros next year to meet deficit targets in 2012 and 2013. France's debt load is more front-loaded than Germany's during 2012 to 2014, even though France's public debt as a percent of gross domestic product is not much higher than Germany's, the report said.

"It will be important for the government to stay focused on returning the economy to a more prosperous growth dynamic and ensuring that France doesn't fall into laggard growth traps, as happened with Spain and Italy," said Sam Valtenbergs, senior quantitative research analyst, and the report's author. "There has not been a single year since the formation of the euro in which France has received positive net foreign direct investment (FDI) flows."

Since 1999, France has seen almost $700 billion worth of foreign investment capital leave the country, according to the report.

Founded in 1983 by innovators in the investment management field, Mellon Capital Management Corporation applies a disciplined and analytical approach to global investment management strategies. As of June 30, 2012, the firm had $240.4 billion in assets under management, including assets managed by dual officers of Mellon Capital Management Corporation, The Bank of New York Mellon and The Dreyfus Corporation, and $8.3 billion in overlay strategies. Additional information about Mellon Capital is available at www.mcm.com.  It is part of BNY Mellon Investment Management, one of the world's largest investment managers.

BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.3 trillion in assets under management. It encompasses BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies. More information can be found at www.bnymellon.com.

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team. It has $27.1 trillion in assets under custody and administration and $1.3 trillion in assets under management, services $11.5 trillion in outstanding debt and processes global payments averaging $1.4 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com or follow us on Twitter@BNYMellon.

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