France Has Credit Rating Downgraded By Standard and Poor’s as ECB Reduces Interest Rate
Continuing a two year trend that has seen the once AAA rating of French sovereign debt reduced, the ratings agency S & P announced it is cutting its rating on government debt from Paris to AA. This decision flows from the moribund state of the second largest economy in the Eurozone, which is suffering from high unemployment, large public deficits and a failure to engineer strong economic growth.
The government of French President Hollande came to office on a pledge to create new jobs by defying the austerity trends of other Eurozone partners, in part to be financed by higher taxes. The populist message of Hollande, once translated into public policy, has failed to lift the French economy, and notwithstanding the boasts of politicians in Hollande’s administration, S & P clearly sees sovereign debt issued by France as being less credit worthy in the wake of current fiscal and economic policies.
In the meantime, the European Central Bank, which under its president, Mario Draghi, has followed in lockstep with the Fed’s Ben Bernanke in implementing a near zero interest rate policy (ZIRP), has just cuts its interest rate from half a percent to a quarter of a percent. The most recent rate reduction by the ECB, in conjunction with S & P’s lowering of France’s credit rating, demonstrates that the fiscal and economic woes in the Eurozone are far from over. The Eurozone crisis continues.
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