Sarkozy gets downgraded

France’s credit rating downgrade adds to the President’s problems…

 

© Vectorportal

 

The credit rating downgrade of France and nine other EU member-states by the agency Standard & Poors has brought an abrupt end to the uneasy calm that has existed in the eurozone since the turn of the year. The ratings of Cyprus, Italy, Portugal and Spain were cut by two notches. Austria, France Malta, Slovakia and Slovenia were all cut by one notch. S&P stated that austerity is driving Europe into fresh panic and deeper financial crisis as it stripped France and Austria of their desirable AAA credit ratings in a mass downgrade which also saw the credit ratings of Portugal and Cyprus relegated to junk status.

The downgrading of France to AA+ could not have come at a worse time for the French President, Nicolas Sarkozy, who faces re-election in three months. Mr Sarkozy, who has yet to launch his re-election campaign, is trailing the socialist candidate Francois Hollande in the polls. Sarkozy is also under threat from Marine Le Pen, leader of the right-wing National Front. A statement from the French president’s ruling centre-right party, UMP, claimed that the downgrading of French debt by the S&P on Friday would expose as impractical the crowd-pleasing electoral promises of Francois Hollande, the Socialist candidate:

France needs at its head a man who is capable of keeping his sang-froid in the storm and setting a course to get out of the crisis…That is obviously not Francois Hollande.

However, the Socialists will not let Mr Sarkozy forget what he is reported to have said a few months ago in a meeting with advisers: “I’m dead if I lose the triple A.”

Francois Baroin, the French finance minister, tried to play down the national humiliation, saying, “It’s not a catastrophe,” and likening France to a pupil who, instead of scoring 20 out of 20, “had, for once, been given 19 out of 20″. Baroin also responded by criticising S&P’s decision to leave Britain’s credit rating unchanged:

Great Britain is in a very difficult economic situation, a deficit close to the level of Greece, debt equivalent to our own, much higher inflation prospects and growth forecasts well under the eurozone average.

However Baroin’s mudslinging refuses to acknowledge one very important point: Whilst the debt fundamentals may appear very similar for Britain and France (both have similar deficits, total public debts and poor growth rates) one fundamental difference is that Britain retains its own currency which allows it to print money and monetize debt as and when required. Consequently an outright default looks much less likely for Britain than for France which cannot print money thus is forced to use austerity measures as a means of reducing debt. These cuts will have the knock-on effect of further constricting the French economy, and plunging France even deeper into recession. France’s position is no different to that which is being experienced by the likes of Portugal, Spain, Ireland, Italy and of course Greece, referred to collectively as the “P.I.I.G.S”.

France’s credit-rating downgrade will reduce the footing of Nicolas Sarkozy France as well as the standing of France in the European Union. Germany has managed to preserve its AAA rating while France has not. It is important to remember that throughout the development of the European Union and the euro currency, France and Germany have been equal partners. But this turn of events makes France less like Germany and more like Italy. So it could cement Germany’s position in the driver’s seat in Europe. Whatever the consequences of S&P’s ratings downgrades, it is clear that the political aspirations both of Sarkozy and of France have been dealt a decisive blow.

 

Andrew Carroll is currently studying for an MLitt in International Political Theory at the University of St Andrews. He writes on subjects including US and European Politics, and the Arab-Israeli conflict.