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A Eurozone Horror Show for Friday 13th

Economics catches up with Europe.

by
Mike McNally

Bio

January 13, 2012 - 8:40 pm

If French President Nicolas Sarkozy wasn’t the superstitious type before Friday, he surely is now after ratings agency Standard and Poor’s stripped France of its AAA credit rating.

Austria also lost its AAA rating, while several other eurozone countries for whom AAA status is a distant memory, including Italy and Spain, were further downgraded. The announcement reflects continued skepticism by financial markets that Europe is serious about tackling its debt crisis, or capable of doing so.

As if that news wasn’t bad enough, talks between Greece and its creditors broke down Thursday, raising the possibility that the next round of bailout cash for the country will be withheld, and increasing the likelihood of a “hard” Greek default which could spark a new banking crisis.

The rash of downgrades also further dents the fragile credibility of the European bailout fund, which depends on several of the affected countries, notably France, for funding. Announcing the downgrades, S&P said: “Today’s rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone.”

The downgrade of France is especially significant because it finally puts paid to the myth of France leading Europe as an equal partner with Germany — France is now well on its way to becoming just another euro basket-case. The news is a humiliation for Sarkozy, and it may well put paid to his dwindling chances of victory in April’s presidential election.

The probable winner, Socialist Francois Hollande, has already pledged to reverse Sarkozy’s modest pension and employment reforms, and renegotiate the deal to shore up the eurozone which was agreed in December of last year. His election would likely hasten the end of the eurozone in its current form.

Mike McNally is a journalist based in Bath, England. He posts at PJ Tatler and at his own blog Monkey Tennis, and tweets at @notoserfdom. When he's not writing about politics he writes about Photoshop.
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