French downgrade jars Germans

France’s loss of a triple-A credit rating from one agency has put a nasty scratch in Nicolas Sarkozy’s policy record, less than 100 days from a presidential election in which he has not even officially announced his candidacy.

The Socialist candidate François Hollande, his main rival to rule the roost, pounced on the rating downgrade.

Hollande said: “It’s a policy that’s been downgraded, not France.”

But there is plenty of mud to sling around. France has been triple-A since 1975, and both the right and the left have juggled budgets and debt since then.

As for the others in the presidential race… François Bayrou the centrist saw a crisis coming as early as 2007 but has never had his hands near the financial levers.

The leftist Jean-Luc Mélenchon says a war of finance is being waged against France, and has called for it to withhold its contribution to the European Union budget.

Far right candidate Marine Le Pen wants France to get out of the euro single currency altogether.

The downgrade by Standard & Poor’s has not just set the cat among the pigeons in French national politics, but with other euro members too.

The countries with their finances in enviable shape, led by Germany, are divided over how to remedy the crisis. France has stepped closer towards the thin ice others are on. There are deep cracks under some.

France’s negotiating power with Germany is weakened by this. Sarkozy can see his dream of transforming the European Central Bank into a lender of last resort for the euro zone melting, giving way to bare bones budgetary rigour if Berlin gets its way.

Chancellor Angela Merkel said: “We must meet the challenge swiftly, and strike a budget deal without trying to soften it.” (For this, read ‘tougher, sharper, wielding sanctions’.)

Nerves in Berlin’s Bundestag are under increasing strain fearing the French could falter over their contributions to euro zone rescue plans.

With the downgrade, France paying higher borrowing rates erodes its core country fitness. If Germany has to take up the slack, it, too, might suffer strain, ultimately further sapping the euro’s strength and stability.

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