Domino effect feared for Europe

France

Paris

France's loss of its AAA rating could have serious consequences for the whole of the European Union.

It could be calamitous for President Nicolas Sarkozy's chances of re-election in May.

It could produce a domino effect on the debt ratings of French and European financial institutions. And as France, the second-largest economy in the EU, is one of the main guarantors of the eurozone bailout fund, that fund could now also lose its AAA status.

French officials and financial commentators insisted last night that there was no cause for alarm. They took comfort from the fact that the Standard & Poor's ratings agency had reportedly decided to reduce French sovereign debt by only one notch, to AA+. They pointed out that sentiment on international markets had, in practical terms, already downgraded French debt weeks ago by at least this amount.

All now depends on whether the markets take the downgrade as "old hat" or the starting gun for a new assault on the euro.

One French official said last night that the downgrade was "like a slow-motion train crash. Everyone knew it was coming. We could do nothing to stop it. We just have to watch and hope that the death toll will be limited."

Sources in the Élysée Palace said the President was "exasperated" by a "wilful" decision which flew in the face of the recent easing of tensions on European debt markets.

In recent months, Mr Sarkozy has placed fiscal rectitude and his euro-rescuing high-wire act with the German Chancellor, Angela Merkel, at the centre of his undeclared re-election campaign. Last summer he told supporters privately: "If we lose our AAA, I'm dead."

The Prime Minister, François Fillon, said before Christmas that a ratings downgrade would be "one more problem... but not insurmountable".

All depends on how you stack up the figures. The British annual deficit is higher, but accumulated French debt is a higher proportion of GDP. S&P also pointed out in December that France was the only AAA country in Europe with a "primary deficit": in other words, even when debt re-payments are excluded, the French government is spending more money each year than it is gathering in taxes.

In November, in an attempt to save its rating, Mr Sarkozy's government imposed €18.6bn in extra tax increases and spending cuts. It has pledged to reduce its deficit from 5.7 per cent of GDP to 4.5 per cent this year and to 3 per cent in 2013.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
News
The two faces revealed by the ultraviolet light
newsScholars left shaken after shining ultraviolet light on 500-year-old Welsh manuscript
News
Rosamund Pike played Bond girld Miranda Frost, who died in Die Another Day (PA)
news
Arts and Entertainment
books
News
newsHow do you get your party leader to embrace a message and then stick to it? With people like this
Voices
Björt Ólafsdóttir is a member of Iceland's Bright Future party
voicesIceland's Björt Ólafsdóttir on her decision to take part in #FreeTheNipple
Life and Style
The Clove Club will charge customers when they book
food + drink
News
Lapping it up: a woman feeds felines at a cat café in Japan
newsThe vast majority of cat and dog 'wet foods' contain items not specified on the tin, study finds
Sport
Andros Townsend and Paul Merson
football
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: In House Counsel - Contracts

Negotiable: Recruitment Genius: This leading supplier of compliance software a...

Recruitment Genius: Associate System Engineer

£24000 - £30000 per annum: Recruitment Genius: The Associate System Engineer r...

Recruitment Genius: Executive Assistant

Negotiable: Recruitment Genius: An Executive Assistant is required to join a l...

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Day In a Page

General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
How Tansy Davies turned 9/11 into her opera 'Between Worlds'

How a composer turned 9/11 into her opera 'Between Worlds'

Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
Italy vs England player ratings: Did Andros Townsend's goal see him beat Harry Kane and Wayne Rooney to top marks?

Italy vs England player ratings

Did Townsend's goal see him beat Kane and Rooney to top marks?
Danny Higginbotham: An underdog's tale of making the most of it

An underdog's tale of making the most of it

Danny Higginbotham on being let go by Manchester United, annoying Gordon Strachan, utilising his talents to the full at Stoke and plunging into the world of analysis
Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police

Steve Bunce: Inside Boxing

Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat