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A credit crisis for France?

• Published on 19 Jan. 2012 • Category : nyforum

It was unfortunate that so much had been pinned on France’s triple-A credit rating – not just president Sarkozy’s electoral future but that of the Eurozone more generally. Last week S&P downgraded the French rating to AA+, along with eight other European countries. Austria too lost its AAA status, Italy and Spain fell two notches and the ratings of Malta, Cyprus, Slovakia and Slovenia were cut. Unlucky Portugal had its debt consigned to junk status.

It’s bad news for Nicolas Sarkozy who is facing elections in a just few months. In a confession to advisors leaked to the media last year he said, “If France loses its AAA, I’m dead”.

But analysts have been wondering more broadly what this means for the Eurozone. S&P also downgraded the Eurozone bailout fund, the EFSF, arguing that it didn’t have enough triple-A guarantors to retain that status.

At this stage, so many big economies have been downgraded that the loss of a triple A seems to be less of a big deal than it would have been five years ago. People have been quick to point out that when the US was downgraded last year, the results were underwhelming; despite a lot of anxious talk, the implications for the US have so far been small.

But Europe is in a particularly fragile state right now, and after a period of calm, there is a sense that the crisis is back on. Worries about Greece are creeping back as time is running out for it to reach an agreement with lenders.

All in all the situation might appear rather bleak, but there are some silver linings. The other main credit rating agency, Moody’s, has for now let France keep its triple-A rating.  Nor was this the blanket downgrade that some policy-makers had feared. Germany has retained its high score. The bottom line is, it could have been worse — so let’s hope it doesn’t get worse.

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