Solemn skies over Paris reflected a darkening mood in France over the economy, with predictions of an imminent credit rating downgrade. Standard and Poor’s was the latest agency to contribute to the gloom. It is reportedly set to change its outlook on France’s cherished ‘triple A’ rating to negative in the coming days. Some investors have already factored in a downgrade.
Surging unemployment levels are also fuelling speculation of a recession. The jobless figures are likely to worsen as the world economy and French manufacturing slows.
President Sarkozy and his ministers have railed against the downgrade speculation, but the news is undermining his chances of re-election next year. Polls show his Socialist rival Francois Hollande on course for victory.
The government is sticking to its growth forecast of one percent next year, but as the euro crisis deepens analysts are increasingly saying that is not attainable.
For an insight into the prospect of recession in France, and the latest developments in the sovereign debt crisis, euronews’ Laura Davidescu spoke to the economist Jacques Attali, President of Planet Finance.
“Mr Attali, an important French economic daily has talked about an imminent downgrading of France’s sovereign debt by Standard & Poor’s. Can France avoid this downgrading?”
“The downgrading is unfortunately already here, if we look at the facts, because the French interest rates are at a double A-level, not at triple A. So it’s not that important to avoid the downgrading, but rather to do everything to regain the triple A. France has to act, but we also need Europeans to act together.”
“A couple of days ago you said that there’s more than one chance in two of the euro dissapearing by the end of the year. Who can change the direction of this Titanic that seems to be heading inescapably towards an iceberg?”
“First of all, there is a quick solution, with a short term effect, but a very important one, and that solution depends on the European Central Bank. The ECB should buy treasury bonds on the secondary market. And governments don’t have the right to tell the ECB what it should do, governments don’t have their say in this.
When one says “let’s ask Germany to tell the ECB this or that…” No. The ECB is independent. Or, if the ECB is not independent, the governors must be given voting instructions, and we will then see that there is a large majority in the Council of Governors, in favour of buying treasury bonds.”
“So what do we make of this clear nein from Germany to the possibility of ECB intervention?”
“Germany doesn’t have a say. The European Central Bank is independent. Let’s assume that the German governor of the European Central Bank will vote against. But his will only be one vote among others, and a simple majority is enough. So Germany doesn’t have a say. The decision belongs to Mr. Draghi and to the Council.
“And I wonder if Mister Draghi and the Council of Governors of the ECB will accept to let the euro sink and let their own jobs disappear. We’re talking about a fundamental decision, and I cannot imagine for a single second that this decision will not be taken, by Mr. Dragi and Mr. Dragi alone. The ECB has already intervened on the bond markets, buying several hundred million.”
“Not on a massive scale…”
“It’s bought in a significant way. We don’t ask it to announce that it’s going to buy in a massive way, we just ask it to buy. The lenders, whom we wrongly call the markets, don’t wait for a declaration of principle, they watch what actually happens. If the Central Bank buys without announcing it, that would be enough. But we have to stop saying that the decision lies with the Germans. The decision that does lie with the Germans, as it does with all the other Europeans, is the decision to launch eurobonds, which are absolutley fundamental to kick-starting Europe, because without them we will have a recession and not growth.”
“But eurobonds are still being ruled of the equation by German authorities, even if the OECD has just declared itself to be in favour of them. Can we save the euro without eurobonds?”
“In the long term we can’t, we can’t save it without the European Central Bank playing its part, without the European governments, each one, putting their houses in order, reducing their deficits, and without the growth factor that will be spurred by eurobonds, enabling investment and growth in Europe. That will require a leap at the federal level, that’s absolutely unavoidable. Unfortunately the governments in France and German facing elections don’t want to hear the word ‘federal’. Ok, let’s not use the word, but let’s move towards it anyway.”
“Imagine eurobonds are created along the lines the Commission envisages. If an investor from the City were to ask ‘what’s in it for me, what will I gain in buying these bonds?’ What would you reply?”
“The eurozone, or the European Union is the only geographic entity on a continental scale that doesn’t have debt. And I mean it doesn’t have debt. Because even though each country has a debt the EU doesn’t have debt, while the US has big debt as a federal state.
“So, if we had a eurozone endowed with the resource of a fiscal guarantee of two points of VAT – that would be the best bond in the world, since it’s sitting on an entity that has no repayment problem.”
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