France's Triple A credit rating faces downgrade

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“Great Britain is in a very difficult economic situation, a deficit close to the level of Greece, debt equivalent to our own, much higher inflation prospects and growth forecasts well under the eurozone average.”


Francois Baroin -15th December 2011


The governor of the Bank of France Christian Noyer and the French finance minister Francois Baroin are suggesting that the UK should lose it's 'triple a' credit rating and not France. It looks to me like both countries will lose this accolade, so what will it mean for Jo Public?

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Catharine... may your special Christmas wish be answered !!!

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Hilary and Christopher. There are doubts about leadership today. In terms of recent largesse we have the Thatcher-Reagen generation held up as a period of political strength. In fact looking closer at the entire cluster of western leaders almost all but Olof Palme and Willy Brandt wre actually not very good politicians but had a particular type of image that attracted following. Since then it has all gone downhill. Overnight we have lost Kim Il Yong which will bring speculation about how long North Korea can last, but as a rather pointless, directionless dictator in his way he rather better epitomises the reality of politicians. There are, behind them, people of far greater intelligence but also ambition and desire for private power. People gabble on about the Bilderberg Group, which is basically a boy's club of high finance men and their political minions, and a New World Order which is something more like an up-to-date HG Wells' fiction type of scenario. If the people who really exist in their quite, very unpublic offices want to make or break they will. We need a generation of politicians who once in office will stand up against that power. Wishful thinking I suspect.

I understand indeed Christopher. I either lack enough paranoia or fear to take the whole issue so seriously I expect economic Armageddon as others do. Whatever happens, a whole lot of debts will be written off which will bust a lot of people, unemployment will be frighteningly normal and sure there will be public disorder. However I still see the rumours spread around by irresponsible journalism as alarmism and no more. My faith is in the mass to contain themselves generally in the interest of survival whilst some people out of many riot and whilst a few big banks will go out of business, money itself will not cease to exist. Whether Euro, Dollar or Pound it will be there and I suspect the Euro will wriggle through albeit it without a few members and a two track system for the rest.

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@Brian

http://www.c-spanvideo.org/program/UnionDeb

go to 01:18 and start listening to the testimony before the House of Representatives.

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The EU summit in Brussels agreed to provide up to €200 billion more to the International Monetary Fund, which could use some of that money to support debt-laden countries.Its interesting that Britian will be asked to fork over 1/4 of the cost of financing the €200 billion IMF injection. Yep, this is going somewhere.

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celeste - Merkel will get it, Sarko probably not but Hollande... oooooof! As a former urban guerilla said to me about the volatile populations, as you call them, they are glued to TVs but not to principles and they are all getting too overweight to do much revolutioning.

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Christopher, my economist friend in Berlin is absolutely no friend of the present government although a Hayekian. He does not have any respect whatsover for laissez-faire capitalism or the free market and preaches a fair amount of de Tocqueville type of liberalism. He is also not a liberal or socialist, so no bias. He is very much convinced that Merkel has been put up to supporting the progress of the EU by the financial powers that be and that they will push central banks such as the ECB, Bundesbank and so on to intervene at the last moment and make an absolute killing as Soros did in his turn. Now the market is in free fall and they are watching. It is an old, well test and tried method and remember that even in the 1930s there were some who came out of the collapse with small fortunes made because they were a jump ahead.

As for the Foreign Office, well all I would say is that after 20 odd years in Cambridge I either studied with or taught people who keep me well enough informed, thank you. The Daily Telegraph does not measure up to what they know one little bit.

Britain never turned to the Euro. In fact I was always annoyed by that given that all UN agencies and most NGOs I work for pay me in US$ and much of the time repayment of expenses, fares and so what put me out of pocket there and given that fees are now back down to what they were almost a decade ago but inflation went off in the opposite direction I am not a happy man. I would rather have had the secuirty the Euro offered even though some exchange rates fell.

The problem is that the Chinese state is not at all afraid of its own population. It has a perfect and very ancient 'caste' system and a dominant ethnic group who are far more important than what the party is called. The size of military and security forces is scary. After bad experiences there I tend to leave colleagues to get on with work there and stay out personally, in my case because of state sanctioned corruption that was allowed to pass as good research that I rejected and found myself in trouble for. Internal unemployment is growing fast but they have such a diabolical system for controlling the unemployed that they are not going to pose a threat especially. Many people in modern sector employment are doing so well they would not care if Martians took over. If I say some Europeans are complacent then go to China and take a look at them, stunning in its vivid forms of depiction of people as a more leisured people as they become more affluent rather than as poor, unemployed people. The rural Chinese have been kept badly educated, badly fed and under the yoke to suppress a repeat of what Mao achieved with their support, so a non starter there.

China and its present friends, the BRICs if you like, know that if trade slackens off the people who buy their plastic rubbish will not get it at home. Most of those industries lack even a fraction of the output capacity. So they can call in debts as they wish, knowing as you rightly say that the USA and others will not (cannot) pay. If they do it very publicly then the ratings agencies are going to ask big questions. No answers and where does the USA stand but in theory bankrupt. It is not only the Chinese who have the leverage there, so just let other nations call in what is owed and draw a blank...

Fitch ratings are not the best anyway and S&P's record very unconvincing. If 15 Euro nations are under review then the dollar must be on an equal footing at least, if all go down and logically the UK too, then actually nothing much is lost. The eighteenth century Bank of England did actually set out to bankrupt the former American colonies, did it not and that was in their minds until well into the nineteenth. The America colonies cost England a heck of a lot of money when they jumped ship anyway. The UK is still repaying its national debt for the Napoleonic Wars and reparations to countries from which it took slaves

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China cannot call in its US loans. They can try, but they need the US market to sell thier manufatured plastic. But more importantly, the Chinese leaders are more afraid of thier own population, thier continuing misapplication of capital spending, internal unemployment and thier internal inflation. They call in the loans, they get a bunch of electronic "0-1s' back -- its a beautiful system when you are the reserve currency, ask the Bank of England in teh 19th century.

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@Brian, are you suggesting that the Foreign Office has not been making preparations in its embassies for the eventual collapse of the Euro or more simply that if the Daily Telegraph reports it, you proceed as if a reported fact is not true? In my opinion, neither left or right tells the whole truth.

Most nations have known for at least 3 years that the Euro would likely collapse and for at least a year that it will collapse. Britian turned its back on the Euro simply to preserve itself and its currrency as best as is possible (which is not to say that the USA is wholely safe from infection). The Euro-banks (more than Anglo-american Banking corps) are holding dynamite in the form of large exposures to Credit Default Swaps and Obligation instruments on thier balance sheets. (Primarily because they have transferred most of the CDS/CDO risk to taxpayers and in turn the USA has inflated the world's reserve currency to cover the majority of its exposure to the risk.)

Credit default instrument theory assumes every obligation in a preceeding 'tranche' will be paid-in-full on default of the underlying obligation (real or imaginary): the holders of the CDS and CDOs cannot make the payments. Solely as a result of promises of pretty unicorns, accounting tricks and politicians can the Euro- Banks continue to count the value of Credit Default Swaps and Obligations as fully funded face value investments on thier balance sheets.The reality is that the holders of the CDS and CDOs are insolvent, bankrupt with no way to inflate the currency to cover the risk -- and German opposition. Every government has known and played in this farce since 2007, but for the last 3-5 years the Anglo-american banking system has moved the risk to the public ledger by using the world's reserve currency - the US dollar.

The corollary is that when a single holder of a CDS or CDO cannot pay, the whole system comes tumbling down, taking the weakest banks and countries with them. The primary Credit Default instrument trigger is the rating agency downgrades. Recently Fitch Ratings lowered France’s credit outlook and put Spain and Italy, alongside Ireland, Belgium, Slovenia and Cyprus, on downgrade review, citing Europe’s failure to find a “comprehensive solution” to the debt crisis. S&P already on 5 Dec. placed the ratings of 15 euro nations on review for possible downgrade, including six AAA rated countries Moody’s also noted on 12 Dec. that it will review the ratings of all euro countries in the first quarter of 2012.

The trigger is cocked, the chamber is loaded. Now, after months of unsucessful meetings (and Germany's intransience) Britian was asked to place a gun to its head -- Britain wisely refused.

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Precisely celeste. One day I may, perhaps, if I am very lucky received roughly 5% of what I paid into my pension fund that fell into the hands of Lehman Brothers who were taking over other companies without the necessary capital to afford to do so. I had a British pension that went walkabout and finished its jouney in the USA. All three of the ratings agencies you named gave Lehmans a good rating within a range of 48 to 24 hours of the collapse. Imagine how much faith I have in them? Stand and Poor live up to the latter, their overall record of ratings is just that and Moodies fare little better. Fitch are keeping a little quieter than the other two because their record for out of the USA is so dire they dare not. The world is losing faith in them because they are dropping clangers too often. Their incompetences has been stunning at times. In fact even the smaller and less well known and especially European ratings agencies are keeping shut up. Who wonders why? I suspect they know that after the 'big three' lose their status very soon then they will start to earn big bucks... As for the three weeks since the eve of destruction the Daily Telegraph, etc predicted with helicopter rescues from foreign capitals and pillaging on the Champs-Élysées and just about every other city in Europe, ahem got that just a little wrong did they? Celeste, let them play cat and mouse with each other and watch with amusement and do not be so sure about China. If anybody tries pushing Iran to the brink then you bet they will call the debts in just to avoid a war because no money, no afford to use weapons and anyway a big war sees the Chinese market ****ed well and truly.

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Yes celeste, grim but then the inflation sent prices artificially sky high. My colleague in Beijing put in a bid for an apartment that was already three times the value by the time he took possession and he says that ws only about four months! What goes up must come down. If China starts calling in all loans the USA could crash toute suite and plenty of other nations go in a similar direction. Islands and difference, perhaps but then let us say that the difference between the adjoining counties of Kent and Surrey below London is so sharp and likewise Bordeaux or Limoge that we can do that forever. Growing up in London we differentiated much between south and north of the Thames as if there was a border, but then even SW and SE London had differences, preferences, loyalties and all that goes up to make what people tell us makes patriotism! Where it begins and ends is probably one hosue and their neighbour when we really truly look at it in depth.

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Christopher - it is easier to believe every word of the Brothers Grimm than a single word of the Daily Telegraph for people with the slightest degree of common sense. If you think the Tea Party people are right wing then you are wrong, this is as far right as it gets without being Der Stürmer style. Take a large dose of your cooking salt whilst doing your oysters if you are going to swallow this kind of foul brew.

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Spain Banks Face 43% Price Fall on Repossessed Homes, Fitch says while the Foreign Office says it will bring stranded ex-pats home using planes trains and buses.. Military planning work has come to light after The Daily Telegraph disclosed last month that British embassies in the eurozone have been told to prepare emergency plans for the demise of the euro and the possible civil disorder that could follow. Working in finance most have known for a long time that the Euro will not survive and governments have known for an even longer period of time. What has surprised most people in fianance and governemnt is how short a period it has taken to collapse. The amount of pressure on rating agencies to stop any write-down is enormous because they trigger the true WEAPONS OF MASS FINANCIAL DOOM: the Credit Default Swaps and Obligations. Larger international banks have shifted MOST of thier losses to the individual countries taxpayers, but the credit default swaps and obligations threaten smaller banks AND the countries themselves-- some group must take the losses on the CDO/CDS when they cannot pay the amount promised: 400+ times the world's gross economic production.. That is the issue now.

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Vengeance and greed do not make friends. If the UK is not downgraded and either Euoropean country is then economic war will follow in which the UK will probably be the biggest loser because of reality. To be honest, I am so ready to chuck my British passport but feel obliged to hang on for the Scots declaration of independence. For England, I have no tears to shed... The USA will earn a very bad place in history, but none of us will be around to read it. Best stick to the oysters my friend!

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British neo-imperialism and sterling survives because it looks west, not east; while the USA looks east to Britian and not Europe. The US is merely a continuation of 19th century British Empire financial, economic and geo-political models moved temporally and geographically. But be prepared the rating agencies will downgrade France and Germany soon: it will be the opening salvo.

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Jim (or should I say Jimmy?!)- my use of words was based on old service connections which computers don't always pick up. Take a close look ! I still believe that Great Britain is something that still has some values scarcely found elsewhere, although my French friends still like to believe in "le fair play British", something I think that does seem to have gone down the tubes. Whilst being British, I am in fact well less than half English, but I have always thought that if Scottish MPs should have no part to vote on wholly English matters. Thus if "independence" is ever achieved they would presumably have a decreasing involvemnt in British (i.e. English, Welsh and NI ) matters. I am one of many who wish Britain had had less activity from Scots politicians over recent years. I certainly don't believe in the fiction of a huge British influence on world affairs, and in fact see the recent financial problems as evidence of the shift in world power. I took the decision to leave the UK because it was no longer the place (I lived in London) that I wanted it to be. Both my sons were subjected to unprovoked knife attacks and my then wife, since deceased, was improperly treated by the NHS. Not sorry that I made the move but I'm retired and I don't think I could make a living in my profession where I am. I am enjoying the current drift of the euro though although it only reverses the preceding slide of the pound!

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I bow to your wisdom Nick. The UK is in for much more of a rough ride than France but will not have it. Impetuous foot stamping does not become the English peasantry but stands more for those of the nanny and much pampered classes who have traditionally provided by assumed right leadership. I am of the former rather than latter and by dint of education no longer accept that leadership without question. I challenge them and this time they are bluffing badly. I seriously do see some of the powers that be foot stamping because the EU is not the money bucket for them with THE major influence in that group coming from them. When de Gaulle et al did not accept them in to the then 'Common Market' in the 1950s Europeans knew the game they were playing and London has never accepted gracefully. 'Rule Britannia' is jingoism from a time when an Empire was being acquired and much of the imagery of the Roman Empire was sequestered. It never washed, indeed the British Empire was a mere flash in the pan in comparison. However, the sense of superiority that the hegemony harbour allows deceit of the people who still look up to them. It is the Cleese, Barker and Corbett sketch in real time and life. If the British finance sector ever opened its books for real scrutiny more money would flood out of the City than anybody can imagine and bankruptcy would be very possible. Hilary somebody is telling us all terrible porkies and Nick has it in one crucial bit there "if all debt is taken into account , including the UK Banks is currently 4 times GDP, worse than Greece. If the French is down graded, then the UK must be as well". If I was you I'd look to where you keep any money you have. This week looks good but when the finance 'war' begins in earnest I do not want Sterling myself. I also listen to economists and not credit ratings agencies who proprietors and boards you really need to scrutinise as well to see what you can work out about what they might want! Nick, bravo on Daily Mail and UKIP because they rely on innuendo and avoid hard facts consistently. One problem with the ENGLISH politically is that they still believe in the UK as an eternal ficture with world influence when in fact all is falling apart and the UK at the beginning of UKIP is entirely disingenous to begin with and the Daily Mail so neo-emperialist it is frightening. If Scotland goes independent then the EU will be immediately out of fashion whilst that rag tells the English people that Scotland is theirs by right, etc. Different song, same tune. Look at facts not reports by journalists and watch closely. Nick, I suspect, will be proven right.

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Nick, I agree with all your comments. I do wonder whether heavy lobbying of the rating agencies make their decisions less than accurate. As you say, their track record, which includes their cover up, or 'failure', as you call it, in the crisis over American prime mortgages, which caused financial misery to thousands of people, hardly engenders confidence.

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You have to remember the USA was down graded, and very little happened, and I suspect the same here. You must remember as well the rating agencies were all heavily criticised for their failure in the 2008 crisis, and have been horribly wrong on many occasions , including Enron. They are at best an indicator, but they are not the be all and end all. All city reports indicate they have already discounted a potential downgrade, so the indexes will flutter red for a day or two, but nothing more.

There is no doubt the head of the French central bank is correct, the UK's total current leverage. if all debt is taken into account , including the UK Banks is currently 4 times GDP, worse than Greece. If the French is down graded, then the UK must be as well.

There have been good signs in the markets recently for the cost of government borrowing, but the post Xmas quarter will be the one that tells us all which way this is going to go. My feeling is that the ECB will step in if needed, and buy the necessary bonds. I suspect some rates will be eye watering, but will remain just affordable.

I think the real worry for the UK's future is the flat lining growth predictions and the lack of a non-city based or high street spending spree potential for recovery. Unemployment in the UK could well remain high for many years, as a significant proportion of all manufacturing has now moved to Asia or Eastern Europe.

I'm sorry to disagree with you Hilary, but your analysis of what will happen is fundamentally flawed. If you think the collapse of the Euro will be followed by a mild "belt tightening", then you are in for a shock. If as Christopher rightly points out due to the markets forcing up bond repayment interest rates, and major Banks start to fail, we will be smack bang in the middle of the next depression. The UK will be on the poop deck of exactly the same boat - The Titanic. It is also not obvious that the Euro will fail at all, just because UKIP and the Daily mail would love it too. I believe it will not, but time will tell.

This next paragraph is just a personal plea.

Can anyone on the forums who thinks about putting forward the UK body politic forward as some sort of bastion of proprietary and clear minded thinking, please stop and consider it first. We have several ex-MP's now serving time at her majesty's pleasure, as significant numbers were caught stealing from our Tax revenues. The UK's politicians are no better than anyone else’s and to to think they are is delusional. It is the UK's politicians catastrophic decisions to send our manufacturing to Asia and rely on the bankers in the square mile that has to a large extent landed the UK in the post crisis mess that it is now in. Not the French, or the Germans or indeed the Greeks but the good old British politician.

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France will lose its AAA rating. They were given a repreve to make adjustment before the announcement. The issue with rating agencies are not the future implications, it is the current Credit Default Swaps and Obligations trigger payouts with with downgrade. France banks are sitting on a powderkeg of payouts which they will only just make. If the ratings go down further, they will default.