Journal Issue

Statement by the Staff Representative on France Executive Board Meeting, July 8, 2015

International Monetary Fund. European Dept.
Published Date:
July 2015
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This statement provides information that has become available since the issuance of the staff report. The information does not alter the thrust of the staff appraisal.

There is substantial uncertainty in the euro area following recent events in Greece, including the expiration of the European program last week and Sunday’s referendum. The broader market reaction has been generally contained, with the euro exchange rate remaining stable against the U.S. dollar, sovereign spreads widening moderately for a number of countries, and equity prices declining throughout the euro area. For France, sovereign yields have remained broadly stable since the issuance of the staff report, while stock prices have declined alongside other euro area markets, with contagion effects particularly noticeable for bank equities. Heightened uncertainty may continue to weigh on markets and sentiment.

As noted in the staff report, direct trade and financial linkages between France and Greece are limited, but adverse developments in Greece could weigh on confidence in the region and indirectly affect France’s economic prospects. Overall, staff continues to see risks to France’s short-term growth outlook as broadly balanced at this stage, with heightened uncertainty around Greece weighing on the downside.

The recent events highlight the importance of timely and effective policy actions to manage potential spillovers, especially at the euro area level. Beyond the near term, there should be a concerted effort to accelerate deeper integration within the euro area and strengthen firewalls. The upcoming euro area Article IV report will elaborate on these policy challenges.

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