The second of the major credit agencies have downgraded France from it’s treasured triple A status in the World’s financial markets. The result is unclear at the moment but there is a huge risk that it’s borrowing costs will rise as a result of this action. Of course, the last thing any country needs with a high debt rating is to have the cost of it’s loans rise. Read this excellent article by the Economist on the French Economy.
The rating has been downgraded one notch to Aa1 and apparently is the result of ’deteriorating economic prospects’. The agency involved – Moody’s says it was maintaining a negative outlook on the French economy ude to the many challneges the country faces primarily structurally. They cite a loss of competitive advantage which may be referring to the high levels of taxation and the costs of employing labour in France.
It will cause France lots of issues, not only because it will lose access to the many investment funds which only deal with countries which have multiple AAA ratings. There is optimism that there will be little overall effect at least in the short term as much of Frances debts are in the form of 10-15 year yields on bonds.
All this comes alongside the backdrop of the EU asking for more money, in fact they want an increase in 4.8%. While the rest of Europe implement spending cuts and austerity policies, the commission keep spending more.
It’s often difficult to keep up to date with the Euro Crisis news in the US, but I would recommend the BBC for relatively impartial reporting. The French Press is good as well and most of the main news is translated to some extent, you can also try the excellent M6 Replay for some great documentaries occasionally. The economic stories usually get at least one programme a week on Newsnight on BBC2, and through this post – if you want to watch BBC Iplayer on the Ipad in the US – http://www.proxyusa.com/iplayer-ipad-us-vpn, it’s a viable solution.
The negotiations for the EU budget levels will be even more interesting when one of the biggest supporters sees the growing costs of servicing their own National debt.