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France Loses its AAA

About this time last year, French President Nicolas Sarkozy was preparing for an imminent S&P downgrade of his country’s credit rating from its cherished AAA status. Under President Hollande, the story is the same, only this time it’s Moody’s that has downgraded France from AAA to AA1, with warnings that it may fall further if France doesn’t act fast to fix its debt problems.

The Wall Street Journal has more on Moody’s rationale for the downgrade:

“Those measures alone are unlikely to be sufficiently far-reaching to restore competitiveness, and Moody’s notes that the track record of successive French governments in effecting such measures over the past two decades has been poor,” the ratings firm said. . . .

Dietmar Hornung, Moody’s lead analyst for France, said in an interview that the agency’s decision was based on “a country-specific analysis” rather than broader euro-zone factors. He said Spain and Italy “to some extent” have taken action, “But there are short-term concerns and to some extent it’s about [France's] growth model.”

Moody’s was critical of Mr. Hollande’s tax-increase plans, too, saying the growth targets that lie behind them are “overly optimistic” and tax increases will further weigh on consumer spending, which provides over half of French GDP.

This latest downgrade will do nothing to improve the continent’s never-ending sovereign debt crisis, and it’s hard to imagine it doing anything for Hollande’s plunging approval ratings either.

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