In a world in which the wealthy–nations, companies, and people alike–borrow with great ease while the poor beg constantly, Moody’s cut the Aaa rating of France. The credit agency kept a “negative” watch on the sovereign.

Others, in some cases,  which have lost top ratings with the Big Three agencies, have shown it comes without effect. The U.S. was cut, only to see its borrowing costs drop to the lowest level in memory and perhaps on record. The trigger for this ongoing advantage rests on “the flight to safety” which increases in harsh economic times, but France will have no such luck even with its new Aa1 status. Its presence amongst the staggered nations of Europe has already damaged any outlook of its prospects.

Moody’s issues its warning, and analysis:

1.) France’s long-term economic growth outlook is negatively affected by multiple structural challenges, including its gradual, sustained loss of competitiveness and the long-standing rigidities of its labour, goods and service markets.

2.) France’s fiscal outlook is uncertain as a result of its deteriorating economic prospects, both in the short term due to subdued domestic and external demand, and in the longer term due to the structural rigidities noted above.

3.) The predictability of France’s resilience to future euro area shocks is diminishing in view of the rising risks to economic growth, fiscal performance and cost of funding. France’s exposure to peripheral Europe through its trade linkages and its banking system is disproportionately large, and its contingent obligations to support other euro area members have been increasing. Moreover, unlike other non-euro area sovereigns that carry similarly high ratings, France does not have access to a national central bank for the financing of its debt in the event of a market disruption

Europe’s financial catastrophe claims another victim

Douglas A. McIntyre

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