Despite last weeks Brussels summit which was geared towards increasing confidence in the eurozone France could soon be downgraded from the triple A credit rating they have held since 1975.
In a warning to France, Germany and other eurozone members Standard & Poor’s announced before the summit that they were on the verge of a ratings collapse while some analysts believe France could be the hardest hit country in the region despite accepted rules put in place for budget-tightening.
The S&P believes that the company’s rating could fall two notches because officials in the country have been too optimistic with their growth predictions, have offered an inefficient number of budget cuts and because of an ongoing threat of a recession which has been the case for months.
France also has large exposure to banks located in hard hit areas including Spain, Greece and Portugal.
In a Reuters report the agency found that 11 of 13 economists believed a downgrade was on the horizon for France in the next three months, a downgrade that would likely hurt Nicolas Sarkozy’s chance to be re-elected in 2012. Sarkozy recently said during a private conversation “If we lose the triple A, I’m dead.”
In the meantime it’s possible that a third austerity plan could be enacted. In past plans France has focused on tax raises instead of following in Britain’s footsteps who instead offered sweeping cuts to governmental programs.
Speaking for her country French budget minister Valerie Pecresse noted:
“We work for the French people, not for the ratings agencies” … “No one doubts France’s ability to pay back its debt.”
Do you think France is headed for a ratings downgrade?