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Will France be the next market downgrade?

As most of you have seen in recent days, world stock markets have been manic depressive, going through ups and mostly downs due in large part to widespread worries that the US debt downgrade from S&P and the fiscal debt in countries such as Greece, Italy, and Spain will result in worse market conditions for investors.

My other sovereign’s an AAA (The Economist)

There was a market backlash against French debt and enormous market losses for French banks like Société Générale, BNP Paribas and Crédit Agricole (exposed to Greek debt and other European sovereign debt) that is making investors increasingly anxious about France’s debt. Indeed as The Economist writes:

“France’s debt stood at 82% of GDP last year, from 64% in 2007. This is one of the highest of any AAA-rated country. That, investors fear, means it could be the next target for a downgrade, especially if already anaemic economic growth falters further. The extra yield required by investors to hold French debt instead of German Bunds jumped to almost triple the average level of 2010 while the cost of insuring against a default by France reached new highs during the week.”

Moreover, as The Telegraph writes, “French banks have €410bn (£360bn) of exposure to Italy alone according to the Bank for International Settlements. The twin crises in France and Italy are now intimately linked and appear to be feeding on each other.”

How will France proceed? According to a great, in-depth Bloomberg interview (embedding not allowed) with Philippe D’Arvisenet, global chief economist at BNP Paribas SA, France initiating austerity measures is “inescapable”. They go on to discuss France’s exposure to European sovereign debt, reform plans to cut spending but keep tax rates at current levels (though with elimination of some 500 tax loopholes).

The same Telegraph article states, “French president Nicolas Sarkozy has ordered a “general mobilization” to slash France’s budget deficit in a frantic effort to safeguard the country’s AAA rating and head off a downgrade by Standard & Poor’s.”

We will see how this plays out…for now, the markets will likely continue to be manic depressive. Hang on tight!

I leave you with this passage from the Telegraph article:

“…Marchel Alexandrivich from Jefferies Fixed Income said investors are worried that the latest contagion to France could bring the eurozone’s bubbling problems to a head in a dramatic fashion.

“If France is dragged into the problem, then we will hit crisis point. They will either have to move to a full-blown eurobond — and German politicians are set against that — or face a break-up. There is a significant chance that the euro will no longer exist in its current form within twelve months,” he said.
President Sarkozy said France would include a “golden rule” in its constitution to restore fiscal probity, adding that the fiscal targets for 2011 and 2012 were “untouchable”.

The new budget measures will be introduced on August 24 and are expected to include the closure of 500 tax loopholes.

The IMF said France has the highest debt ratio of any AAA state this year at 85pc of GDP and may have to tighten further next year. Like the US, France has also built up huge pension debt and contingent liabilities.”

New book from former French resistance fighter all the rage

The New York Times has an article about former French resistance fighter Stéphane Hessel’s new pamphlet book called “Indignez-vous!” (“Time for Outrage!”). It is quite the popular phenomenon and an excerpt of the article is below, as well as a link to The Nation‘s publication of it.

A Resistance Hero Fires Up the French
By ELAINE SCIOLINO
Published: March 9, 2011

PARIS — As a hero of the French Resistance, Stéphane Hessel was in exile with Charles de Gaulle in London, imprisoned in concentration camps, waterboarded in Nazi torture sessions and saved from hanging by swapping identities with an inmate who had died of typhus.

Now, at 93, he is the author of a best seller that has become a publishing phenomenon in France. It is not the story of his life (he wrote his autobiography years ago), but a thin, impressionistic pamphlet called “Indignez-Vous!,” held together by two staples and released by a two-person publishing house run out of the attic of their home. It urges young people to revive the ideal of resistance to the Nazis by peacefully resisting the “international dictatorship of the financial markets” and defending the “values of modern democracy.”

In particular Mr. Hessel protests France’s treatment of illegal immigrants, the influence on the media by the rich, cuts to the social welfare system, French educational reforms and, most strongly, Israel’s treatment of the Palestinians.

“When something outrages you, as Nazism did me, that is when you become a militant, strong and engaged,” he writes. “You join the movement of history, and the great current of history continues to flow only thanks to each and every one of us.”

Since its publication in October “Indignez-Vous!” has sold almost 1.5 million copies in France and has been translated into Spanish, Italian, Portuguese and Greek. Editions are planned in Slovenian, Korean, Japanese, Swedish and other languages. In the United States, The Nation magazine published the entire English text last month…

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