Europe is facing a dire situation that now gets quite complicated by the action where Standard and Poor's stripped France and Austria of their AAA credit rating while Malta, Slovenia & Slovakia also suffered a one-notch downgrade and Italy and Spain fell by two notches (to BBB+ and A respectively). France’s downgrade was widely expected and in principle should already be factored in by forward-looking bond markets. Yet so fragile is confidence in markets for euro-zone bonds that investors are unlikely to greet the ratings downgrade with a Gallic shrug. In the case of France, it is not only a blow to the country's prestige. It also tears a hole in the already threadbare euro-zone safety net, the European Financial Stabilization Mechanism.
French downgrade also downgrades Nicolas Sarkozy’s re-election chances Paris, Jan.21.─ ... thanks to President Nicolas Sarkozy, France’s AAA rating became a national symbol last year. Every voter knew it was bad news when Standard & Poor’s (S&P), a ratings agency, downgraded France from AAA to AA+ on January 13th. S&P blamed the euro-zone crisis and France’s high debt. It also stripped Austria of its AAA rating and downgraded seven other countries. But Germany kept its top rating, despite being on credit watch. Had Germany also been downgraded, Mr Sarkozy’s failings might have come under less intensive scrutiny.
It was Mr Sarkozy himself who reportedly said last year that, if France lost its AAA, “I am dead”. François Baroin, finance minister, added that France could preserve its social model only if it kept the top rating. A poll this week for Europe 1, a radio station, found 68% of the French cared about the rating and thought its loss would have grave consequences. The main worry is that France’s cost of borrowing will rise—though so far rates have been steady.
François Hollande, the Socialist presidential candidate, tried to capitalise on the news. His poll lead over Mr Sarkozy has narrowed: 28% of voters now plan to vote for him in the first round, against 26% for Mr Sarkozy, though he still has a clear lead for the second, decisive round, says one recent poll. “It is not France which has been downgraded, but a government and a president,” Mr Hollande declared. Two other presidential candidates, the National Front’s Marine Le Pen and the centrist François Bayrou, also hope to benefit from voters’ disillusion after the downgrade ...
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