FRANCE APPEARED to be bracing itself for a credit rating downgrade as ministers hit out at rating agencies and insisted the country’s economy was healthier than Britain’s.
Nicolas Sarkozy’s government fears the economic and political cost of losing its prized triple-A status and has pledged to do everything to retain it. In recent days, however, ministers have begun playing down the potential impact, with Mr Sarkozy saying a downgrade would “not be insurmountable”.
A rating cut for France could have a serious impact on the euro-zone rescue fund, the European Financial Stability Facility, that funds bailout packages for Ireland, Greece and Portugal partly through bond sales. The facility can borrow cheaply thanks to its own triple-A rating, but owes that to guarantees from the six top-rated euro-zone states, including France.
In a further sign that Paris feels aggrieved at being identified as the weakest of Europe’s triple-A states, finance minister François Baroin yesterday said the French would “take lessons from nobody” and singled out the UK for criticism. “The economic situation in Britain today is very worrying, and you’d rather be French than British in economic terms.”
Relations between Paris and London have been strained since last week’s EU summit, when British prime minister David Cameron vetoed a new EU treaty – an outcome hailed by Mr Sarkozy as marking the birth of “two Europes”.
The Standard & Poor’s agency is reviewing France’s triple-A rating for a possible two-level downgrade as part of a wider review of euro-zone ratings following the summit deal. Speculation that a move could be imminent has grown with a series of comments from French leaders suggesting they are increasingly resigned to the prospect.
“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,” Mr Sarkozy said – a marked shift on previous warnings that a downgrade would be disastrous for France. His foreign minister, Alain Juppé, also minimised the potential fallout in recent days.
"If we lose the triple-A, I'm dead," Mr Sarkozy said on October 23rd, according to the newspaper Le Canard Enchaîné. He faces a difficult re-election campaign in the spring and a downgrade would damage his attempts to position himself as the most credible candidate on the economy.
Mr Sarkozy has sought to protect the state’s creditworthiness by announcing two austerity packages since August, but critics, including the European Commission, claim the government’s growth estimates are too optimistic and that further cutbacks will be required.
France has focused much of its ire at Britain. “When I look at our British friends, who are even more indebted than us and carrying a bigger deficit, what I see is that the ratings agencies so far don’t seem to have noticed,” French prime minister François Fillon said.
In a broadside against rating agencies on Thursday, Bank of France governor Christian Noyer said if they considered economic fundamentals, they should downgrade Britain before France.