Trouble with eurozone debt, a slowing economy and a heavy debt load have finally caught up to France. Moody’s warned it could change its outlook on French sovereign paper, although the agency said a change in it AAA status is not imminent. Yet, the Moody’s comments are the start of a process that will end in a downgrade.
Moody’s expressed worry that the rise in the rates eurozone nations must pay for debt they issued has moved relentlessly higher. Yield on Italian paper has occasionally been above 7%. Spain’s paper has approached that. Greece would pay such a high yield that it would be pushed into default if its neighbors had not bailed it out.
It is only recently that forecasts from agencies like the OECD have warned that Europe’s economy has moved to the brink of recession. Many nations, including Spain and Greece, are already in a period of contraction. France and Italy can only remain briefly in a growth stage, if they are in one at all, before the trouble in the rest of the region pulls them into negative GDP territory.
Some economists expected Germany and France would post GDP growth through the sovereign disaster. That would make it more likely that their economies and their aid would pull through the balance of the region. Germany may still be in that category. France is not.
Douglas A. McIntyre
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