The Staggers

The New Statesman’s rolling politics blog

France to lose AAA credit rating

Standard & Poor's set to downgrade France's credit rating at 8pm tonight.

By George Eaton Published 13 January 2012 17:02

The markets have been thrown into turmoil this afternoon on the news that Standard & Poor's will downgrade the credit ratings of several eurozone countries at 8pm tonight. Among them is France, which is set to lose its cherished AAA rating, forcing it to pay more to finance its debt. Austria is also expected to lose its AAA rating.

Nicolas Sarkozy has previously attempted to minimise the potential impact of a downgrade, calling it "not insurmountable" in an interview published with Le Monde.

"If rating companies pull it, we'll face the situation coolly and calmly," he said. "It would be an additional difficulty but it's not insurmountable. What is important is the credibility of our economic policy and our strategy of reducing spending."

But the real danger is that this will also lead to a downgrade of the European Financial Stability Facility, the vehicle funding rescue packages for Greece, Ireland and Portugal, which owes its AAA rating to the credit-worthiness of the six countries who fund it - Germany, France, Holland, Austria, Finland, and Luxembourg. Should that happen, the risk of a calamitous Greek default would dramatically increase. The pressure would then be on Germany to finally allow the European Central Bank to act as a lender of last resort.

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30 comments

Sat, 2012-01-14 10:39 — Luddite (not verified)

"France to lose AAA credit rating". Working 35 hours a week, with a 2 hour lunch-break and retiring at 60 is going to cost the Franch more. By heart bleeds for them.

Sat, 2012-01-14 11:48 — matthew fox (not verified)

What heart are you talking Cloddite, your also missing a brain.

I see Peter is blaming the French, shame he can't tell anyone what Cameron's policy on the Eurozone is.

Cameron and Osborne have sat on their hands for over a year and arestill scrambling.

Policy A was to get the IMF involved, but that died a death, so Policy B was to copy Labour, and try to get the ECB to sort the crisis.

Cameron has done no one a favour, the euro will make hurt Britain, making exports more expensive to the Eurozone.

Peter also wilfully ignore the bad trade figures released for Nov 11, exports down, especially to countries outside the eurozone.

I have to mention this, because the Right want to hide behind the eurozone crisis.

Sat, 2012-01-14 12:22 — John (not verified)

Is there some way S & P could be downgraded so we didn't have to put up with any more of their nonsense?

Sat, 2012-01-14 13:25 — Indu Pendent (not verified)

@matt

"All this news will push the euro lower, and make exports to the eurozone more expensive, further hampering the so called " Export Led " recovery."

Yes.

It will
- increase inflation (Euro goods become more expensive)
- dampend the UK economy which will increase unemployment and subdue wages

So we are looking at a prolonged period of realignment of incomes relative to the cost of capital (have you read Danny talking about this?)

There is a huge difference between the UK and the weight of Euro land in that the UK has been implementing cuts for a significant period and we have momentum whilst they havent got going in France and Germany. Hopefully it will allow us to keep our AAA but we need to press on with cuts. It depends on whether the Euro downgrade undermines the value of Euroland assets held by the UK.

But if the AAA does hold, we could be looking at windfall for the UK. A fall in the cost of borrowing for the UK which is a substantial stimulus benefiting business and overseas investors looking for low risk investments.

We need to take measures to
- devalue sterling (QE)
- tariff on imports (VAT)
- encourage profit dumping in the UK (low corporation tax)
- make people cheaper (low PAYE and NI)

i.e. the opposite of Labour although even Ed Balls is seeing the light.

Sat, 2012-01-14 13:59 — super huey (not verified)

Ed Balls, can't help but laugh when his name comes up... the man who started this frenzy spend has now executed his own u-turn. Trying to define 'Labrokes' policy of, "oh if we were in power we would have done the same except it's worse off now so we'll keep doing it if we win the next election..." right... thats a sure winner with the public.

By the way, this is bad news for us but I can't help but give a sly smirk at the French after they tried to influence the credit agency to downgrade us first - in your face sarkozy now lets see if you survive your GE

Sun, 2012-01-15 17:58 — Hugh Markey (not verified)

And Yea, the Yankee dollar speaks and boy you had better listen.
Surely it's about time the EU and Asia set up credit rating agencies of their own and shone a light into US business practices. Enron. Long Term Capital Management and Bear Stearns - imploded against all odds and the Fed ( US Government ) was left holding the triplets. Why was not this financial disaster treated as a harbinger of unpleasant things to come?

Allez-vous en

Sat, 2012-01-14 16:20 — matthew fox (not verified)

Inastew, you have more waffle then a New York Diner.

Not only don't understand Osborne failed economic policies, now your droning on about the possibility of lower borrowing costs.

Those awful trade figure for Nov 11, and trade figures for Oct 11 were revised downwards as well, have really killed your wacky ideas.

Sat, 2012-01-14 18:21 — Eddy S (not verified)

the rating agencies are finally doing there jobs and now have the balls to reflect risk in their ratings. they should not buckle under the political pressure - the way the US govt try to discredit them after their downgrade was shameful.

Fri, 2012-01-13 18:20 — super huey (not verified)

Gawd... sarkozy is gonna go raving mad and command that the UK be downgraded too... watch this space...

Sat, 2012-01-14 19:45 — Robert Taggart

"Vive le differance" !

Fri, 2012-01-13 18:25 — Capitalist and Proud (not verified)

Trillions keeping this pack of cards up. Then they have promised free health care, free education, free houses, free food, free pensions, free clothes, free plasma TV's free. Free, free, free, everything free. You don even have to work anymore.

Wonder how this works when you can't borrow money anymore?

Fri, 2012-01-13 18:28 — matthew fox (not verified)

France's downgrading will affect the viability of the EFSF.

The country’s downgrade would affect the rating of the European Financial Stability Fund, making the bailout of the region’s troubled economies more expensive.

All this news will push the euro lower, and make exports to the eurozone more expensive, further hampering the so called " Export Led " recovery.

Fri, 2012-01-13 18:37 — Mr Danger

"Wonder how this works when you can't borrow money anymore?"

That argument doesn't really explain Denmark does it?

Fri, 2012-01-13 19:10 — Buckskins (not verified)

Let them eat Frogs.

Fri, 2012-01-13 19:16 — Buckskins (not verified)

Most of Europe will be on its face by the end of the year. Germany can't and will not, attempt to do it all. This will of course affect the rest of the world. If you think you have seen the high in gold, I would think again. Thar's a hard time a cummin.

Fri, 2012-01-13 20:52 — Briar (not verified)

So the real rulers of the world yank at the leash. The question we should be asking is: what sort of world are these tyrants imposing on us? And why are we letting them?

Sat, 2012-01-14 23:34 — Awake!

any thoughts on what UK rating would have been if balls and Brown had stayed in?
ahhhahahahahha
er, actually just remembered I have a mortgage @ 0.7% currently....gulp(!)
I wonder how Fitch will respond? obviously being majority french owned woudn't affect their output, ahem.
oh, and those greek talks are breaking down because...er, could it be that the Hedgies who own the CDS have bought the underlying sov bonds from the banks at rock bottom, and as they grow their holding the 90% or 75% who have to agree to the haircut (thus affecting 100% of holders), er, well the banks can't muster up the 75% to agree anymore and get the state money cos, erm, they sold it to the guys who are up in arms about their CDS not triggering since the default wasn't termed a default. So, disconnect between traders and management LOLOLOLOL
Now, can someone forward this to that rockstar blanchflower, he might work it out in a couple of weeks then he can claim he knew all along, maybe pointing us to a past article referring to a hedge fund or something. Actually can't wait for his piece how he predicted how so many western countries would all get downgraded when he was pushing the borrow button so profusely- i mean anyone could see where that would lead, right/ RIGHT!!...
And forward to mehdi, he's an economist now I've learnt recently...
Foxy, i woudn't bother- u read something over the holidays and this will just mes you're head up because u'll realise suddenly u still know less than nothing. A small pointer for you now is to look at time in the models, from your last few threads u just spew static cause and effect theories (yawn we're in the physical world). And that's not even a real world, but that comes later....
Actuall Rafael who seemsto have a brain... it's a scoop son

Fri, 2012-01-13 21:04 — Gideon (not verified)

France downgraded by a company, S&P, that has no credit or credibility and the markets panic and the media give these useless failures, S&P credibility.

Fri, 2012-01-13 21:11 — Matt Thompson (not verified)

Gideon, actually S&P are being fuelled by governments addiction to borrowing - they would not be anywhere near as significant if people and governments lived within their means. S & P have every right to advise people who wish to buy government bonds - after all it is these people who are paying for our excessive public sector.

The trouble with socialism is you always run out of someone elses money. The trouble with capitalism you always make money at someone elses expense.....flip side of the same rotten coin.

Sun, 2012-01-15 00:51 — John (not verified)

That's what you get with right wing leaders pursuing pointless austerity policies that push you into recession-allez les Bleus.

Sun, 2012-01-15 07:21 — Awake!

@ john
u mean like Obama in the states?
CLOWN

Fri, 2012-01-13 23:14 — Greg (not verified)

@ Matthew Fox

Yes, a depreciating Euro will mean Eurozone imports will become more expensive but exports from Eurozone cheaper...hence "export led recovery".

This should eventually help their balance of payments.

Sat, 2012-01-14 00:07 — matthew fox (not verified)

Greg

" Eventually " is such an open ended world, should we go by the Mayan Calendar to chart the recovery.

Just to make you aware, a Euro that lowers in value makes imports cheaper and exports dearer, not the other way around.

I keep having to give Inastew basic economic concepts.

Sat, 2012-01-14 00:10 — matthew fox (not verified)

Super sorry it should read " open ended word "

Sat, 2012-01-14 00:28 — Fergus Pickering (not verified)

Matt Thompson, explain to me very slowly at whose expense, say, Rupert Murdoch, is making money. I would have thought he was spreading it about. But doubtless you know better.

Sat, 2012-01-14 01:12 — Mr Danger

"The question we should be asking is: what sort of world are these tyrants imposing on us? And why are we letting them?"

Go ahead and lend Greece all your money then, teach those tyrants a lesson.

Sat, 2012-01-14 02:39 — Steven (not verified)

It’s a load of old bollox really. Come on admit it? It’s all man made and delusional. Some people in this world are making effortless money out of many peoples misery.

Sat, 2012-01-14 07:55 — Chris (not verified)

It's almost as if it was timed to grab the most impact just as markets began to feel a little better about europes chances. Almost as if someone is trying to point the bond markets towards the US......