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CANNES, FRANCE - NOVEMBER 03: US President Barack Obama is welcomed by the French President Nicolas Sarkozy to the G20 Summit on November 3, 2011 in Cannes, France. World's top economic leaders are attending the G20 summit in Cannes on November 3rd and 4th, and are expected to debate current issues surrounding the global financial system in the hope of fending off a global recession and finding an answer to the Eurozone crisis. (Photo by Dan Kitwood/Getty Images)
The world's ninth largest economy is now joining the first largest in the unhappy doghouse of Standard & Poor's downgrades. Just as the U.S. was busted down from AAA (S&P's highest rating) to AA+, so, too will France see its "credit score" fall.
A downgrade by S&P signals that the latest pledges by European leaders to clamp down on deficits and step up cooperation won’t be enough to end the region’s debt crisis and curtail the rise in France’s borrowing costs. The country’s benchmark 10-year bonds now yield 130 basis points more than debt of AAA rated Germany.
A downgrade of France may further complicate Europe’s efforts to stem the crisis by threatening the rating of the region’s bailout fund. The European Financial Stability Facility, which is funding rescue packages for Greece, Ireland and Portugal partially with bond sales, owes its AAA rating to guarantees from the euro region top-rated nations. A French downgrade may prompt investors to demand higher rates on the fund’s debt.