PARIS (MNI) – The fact that French leaders are now playing down the
fallout from a potential loss of the country’s triple-A credit rating
suggests that the day of reckoning is close at hand.
After President Nicolas Sarkozy assured Monday that a downgrade
would be “an additional difficulty, but not insurmountable,” Foreign and
European Affairs Minister Alain Juppe said much the same in an interview
published Wednesday: “It “would not be good news, of course, but would
not be a catastrophe either.”
The preeminent need to protect the precious triple-A was a decisive
factor behind last year’s controversial pension reform and the billions
of euros in spending cuts and tax hikes decided since August.
As all these valiant efforts have been overshadowed by the
sovereign debt crisis and its brutal impact on economic activity, the
government appears resigned to the loss of its prime borrower status and
is seeking to reassure voters while pinning part of the blame on its
political adversaries, the Socialists.
The Socialists’ candidate in next spring’s presidential elections,
Francois Hollande, has become an easy target for Sarkozy’s ruling
conservative UMP party, despite Hollande’s repeated pledges to respect
existing deficit objectives for 2012 and 2013. Hollande remains far
ahead of Sarkozy in all surveys of voter intentions.
Hollande rejects Sarkozy’s plan for a constitutional balanced
budget amendment. He also intends to push back the government’s target
to balance public finances by one year to 2017, to hire 60,000 public
teachers during his mandate and to overhaul Sarkozy’s pension reform —
all measures the rating agencies cannot help but view with raised
eyebrows.
More alarming, Hollande has claimed he would renegotiate the
Franco-German deal that was the basis for last week’s accord among 26 EU
members for more collective budget discipline and an early launch of the
permanent bailout mechanism for Eurozone members.
What Hollande wants from a new deal is pretty close to the
government’s initial bargaining stance: a major role for the ECB as
lender of last resort to governments and the possibility to collectivize
debt issuance among Eurozone countries. If Sarkozy had to back down in
the face of German Chancellor Angela Merkel’s intransigence, it is
unlikely Hollande would be more successful — unless Merkel’s
center-right coalition were overturned by the Social-Democrats in the
2013 elections.
“And even supposing a victory of the SPD in 2013, nothing indicates
that Berlin’s position will change,” Juppe told the French business
daily Les Echos. “Francois Hollande’s declarations make us more
vulnerable,” he charged, urging that national interests take precedence
over campaign strategies.
Prime Minister Francois Fillon repeated Wednesday in Parliament
that it was “not responsible” for Hollande to pretend he could unravel
an accord backed by nearly all of the EU governments. “Everyone knows
he’s fooling the French,” Fillon said.
In his political heart, Hollande may secretly wish to see the
triple-A go before the election, so if he wins he can blame his
predecessor and be less constrained by ratings worries. Accusations that
he is sabotaging last-ditch efforts to save the euro and monetary union
suggests that campaign strategies are taking precedence on both sides.
Juppe hammered home the point in the interview: “If the opposition
were to take power, the risk of downgrade would be maximal.”
Political jousting aside, a ratings downgrade would mean a loss of
prestige for France and its current government, which is clearly
difficult for leaders to swallow without protest. The rating agencies
“are prone to subjective and political assessments,” Juppe charged.
“Therefore we should no doubt pay less attention to them in the
political debate.”
A ratings downgrade would also be a blow to Bank of France Governor
Christian Noyer, who has bent over backwards to defend the government’s
consolidation strategy and the solidity of French banks, which he
himself oversees. France’s major banks have already been hit by
downgrades.
“A downgrade does not appear justified to me in light of economic
fundamentals,” Noyer said in an interview with a regional newspaper
published Thursday, accusing the ratings agencies of irrationality.
Noyer charged that the criticism of ratings agencies had helped
undermine the market’s initially positive reaction to the last week’s EU
summit accord.
–Paris newsroom +331 4271 5540; email: ssandelius@marketnews.com
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