I am amazed that France
rating has not been downgraded as yet: it does
not deserve a AAA by a long margin.
First, have a look at current rating for European countries (please
note that since this table was published, Moody’s downgraded Italy 3 notch to A2 from Aa2, i.e. the same as Poland or Cyprus). This downgrade is probably
justified in itself, but I am questioning how France can retain the top rating.
From data published by the OECD in May and the IMF in
September, France is in a
worse shape than Italy
according to many indicators.
1. Debt/GDP
If the debt/GDP is the Achilles heel to Italy, its growth is nowhere comparable to France’s which is catching up quickly: +6% for Italy for the period 2000-2012 and +52% for France.
2. Real DGP growth
France is
much better off with GDP growth twice the pace of Italy during 2000-2012 at 1.5%. French
growth is however mainly due to domestic consumption spurred by the state
welfare that France
can no longer afford.
3. General Government
Financial Balances
The French welfare state largess translated into higher budget
deficits whatever the Government (France hasn’t had any balanced budget since
1978): the Maastricht 3% deficit ceiling was respected only 4 times since 2000,
France doing much worse than the eurozone average since 2008 (-5.9% vs. -4.6%);
- Italy fared better with -4.1%.
Analyzing further the budget, the situation looks even much
worse for France: its
primary budget balance has been negative for 10 years whilst Italy had always been positive (note that Italy’s primary budget is even much better than Germany). The
IMF does not expect France’s
primary budget to become positive before 2015.
4. Trade balance
(goods & services)
This indicator is not helping out France’s precarious position, to
the contrary. Since 2005 France
has experienced increasing trade deficits, together with Italy but with an incomparable magnitude: USD 489
billion cumulated, 2.3 times more than Italy;
Germany
in the meantime accumulated a USD 1550 billion surplus. In percentage of GDP
the analysis is the same.
True France
enjoys a net investment income whilst Italy
is negative, which translates into a comparably better current account for France.
5. Unemployment rate
Unemployment is another indicator where France is not comparing well with Italy,
underperforming since 2003.
Conclusion
France
does not deserve the top rating with the three main rating agencies (by the
way, when European politicians accuse these agencies of an American plot against
Europe, beyond being a “scapegoating” affirmation,
they should remember that Fitch belongs to a French company, Fimalat).
According to the indicators presented, France should hardly be better rated than Italy.
According to the indicators presented, France should hardly be better rated than Italy.
Add guarantees to be given by France
for Dexia’s failure (where France
should bear most of the burden since most of the problem arises from Dexia CLF -
the French part of the group with 259 x leverage!) and I do not see how and why
France
will keep its AAA. Belgium
is under watch for possible downgrade following Dexia’s bankruptcy. It is also
quite “funny” to watch France arm twisting Belgium to bear most of the burden
in order to keep its AAA (that it will loose anyway): how guarantees for the
EUR 95 billion impaired portfolio will be shared (EUR 66 billion in Dexia CLF
balance sheet)…
The “funniest” of all is that Dexia CLF is going back to CDC
(the French state owned financing vehicule) where it originally came from under
the name of CAECL. From privatization to nationalization, 20 year of
incompetent board of directors that let an incompetent management expand all
around the world into risky businesses without the means (read capital) of
their ambitions.
Please note that I do not blame the new management that arrived
after the 2008 rescue since Dexia was doomed: there was not much they could do,
and they probably did what they could with the legacy they got.
Source:
WSJ: S&P Cuts Italy's Sovereign-Debt Rating
http://online.wsj.com/article/SB10001424053111904106704576581301721363640.html
IMF: World Economic and Financial Surveys
http://www.imf.org/external/pubs/ft/fm/2011/02/pdf/fm1102.pdf
©
Markets & Beyond
OECD: OECD Economic Outlook No. 89
©
Markets & Beyond
|
http://www.oecd.org/document/61/0,3746,en_2649_34573_2483901_1_1_1_1,00&&en-USS_01DBC.html
Markets & Beyond: Dexia in 2 slides and a few words
http://marketsandbeyond.blogspot.com/2011/10/dexia-in-2-slides-and-few-words.html
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