Philippe Herlin : France Loses its AAA Rating !

IMG Auteur
Published : November 23rd, 2012
466 words - Reading time : 1 - 1 minutes
( 2 votes, 5/5 )
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
0
comment
Our Newsletter...
Category : Market Analysis

 

 

 

 

So Moody’s has decided on Monday night to downgrade France’s AAA rating. This comes as no surprise, since the agency had already announced that the rating was under surveillance. It is following in the footsteps of Standard & Poor’s, almost a year later, which had downgraded France’s rating in January 2012. Fitch remains the sole agency with a rating of AAA for France’s bonds. As long as two of the three agencies were still rating France worthy of the highest rating, France was de facto considered AAA by the investors. But from now on, this is no more the case. The downgrade from the highest level is real, and it will certainly mean the end of these interest rates.

There are already a number of regular clients who will stop buying France’s bonds, in particular those who, by statutory obligations, can only acquire financial assets that have the best possible ratings. In essence, those are the pension funds, because they have to provide retirement on the long term and are not allowed to take on any risk. Also, banks owning France’s bonds in their accounts didn’t have, up to now, to hedge them because they were considered 100% safe. But it is not the case anymore : the bonds being now considered a little more risky, banks have to put aside some liquidities to cover that risk, in conformity with the Basel II, and soon Basel III, rules. And freezing cash always represents costs, so France’s debt will be less appealing.

There is another element we have to take into account : the european help funds are noted AAA because they are, to a great extent, guaranteed by Germany and France. France’s downgrade is likely to affect those funds, meaning that the whole buidup of bailout plans for the endebted countries will become more fragile and costlier. The FESF, actually, just cancelled an issuing of funds.

Beyond these mechanical effects, global worries will grow. Just one week after The Economist published a special piece on France, a time Bomb at the Heart of Europe, Moody’s downgrade acts as a severe confirmation. A core country of the Eurozone, between the virtuous North, close to a balanced budget, and the lazy or laxist South, France is looking less and less like the former and more and more like the latter.

A French debt crisis would jeopardize all of the Eurozone. And we arrive at this conclusion for a very simple reason : all of the governments are just showing themselves incapable of really tackling the problems, making structural reforms and reducing public spending. By patching things here and there with budget tricks, they were able to maintain the illusion, but now it’s over. Up to now, the slide down was a progressive one... it should be accelerating now.

 

 

Data and Statistics for these countries : France | Germany | All
Gold and Silver Prices for these countries : France | Germany | All
<< Previous article
Rate : Average note :5 (2 votes)
>> Next article
Philippe Herlin is a researcher in finance and a junior lecturer at the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers of the Austrian School of Economics, he brings his own views on the actual crisis, the Eurozone, the public debts and the banking system. He is also contributor at www.Goldbroker.com
Comments closed
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
Latest Comments
Predicting The Next Crisis, Programming Behavior: “The Ability To T...
18 JanS W.
Excellent article with a small touch of healthy paranoia. Good idea, 'leave the phone at home sometimes' Go smell the roses !
Racism-O-Rama
18 JanS W.
Fancy specialising in race and gender studies ! And then do exactly what? I suspect, write papers ad infinitum that hardly anyone would read.
Who Moved My Xanax?
17 JanThemis0
I actually agree with a lot of what Trump says while deploring the tone and his lack of judgment in making such remarks publically while in office.
Socialist Dystopia: Starving Venezuelans Loot As Runaway Inflation ...
17 JanThemis
There is a 19th century English word that is particularly appropriate in this instance - "kakistocracy", i.e. government by the worst or least qual...
Who Moved My Xanax?
15 JanMr. Gnawbone1
It is an exploitation of the ignorant and uninformed population, but that is what happens when they pay attention to meaningless information and ...
Racism-O-Rama
15 JanMr. Gnawbone1
It sounds racist, so it has to be. Overton Bubble at work, the faculty were programed to respond as if to a Pavlovian Bell. There is no way to ch...
Racism-O-Rama
16 Jandennyc3
Ah, yes, black welfare recipients receiving our hard earned and easily spent tax dollars and providing us nothing save their lives for our investme...
Racism-O-Rama
15 JanDoom2
It's not just the English that is considered RACIST, it's also mathematics, and a wide range of other things: http://professorconfess.blogspot...
Most commented articlesFavoritesMore...
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS
Take advantage of rising gold stocks
  • Subscribe to our weekly mining market briefing.
  • Receive our research reports on junior mining companies
    with the strongest potential
  • Free service, your email is safe
  • Limited offer, register now !
Go to website.