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Is France Next? By Charles Payne

Happy Veterans Day, and Thanks to all who served

The squeaky wheel gets the oil, but in the world of politics and finance it also gets the attention. Unless it's for something that brings in money and votes, attention in those realms is often the last thing wanted. On that note, it's fantastic when attention is elsewhere. In the world of politics, there is no doubt Herman Cain was a winner because of Rick Perry's gaffe, which will be played forever (really) and made everyone forget about those nasty allegations (Cain passed a lie detector test) against the pizza magnate. (On the other hand, Newt Gingrich was set up to be the big winner on Wednesday and he performed well, but again, there was only one thing anyone talked about yesterday.)

On the world economic stage, France has been able to scramble in anonymity as Greece, and then Italy, hogged headlines with their close calls, political ineptness and pending doom. Yet right behind them and just a little in front of America, France looms larger and larger as an issue that could spook/topple the world. It's kind of amazing considering France has played the role of would-be savior throughout the European debt crisis, especially this summer when tangles with Germany almost scuttled rescue attempts. Maybe France was, as they say on Wall Street, talking its book. Either way, France is a ticking time bomb, too.

To its credit, France has tried to get ahead of its problems and bond market vigilantes. Yesterday, however, the hounds caught the scent and it was a mix of fear with a dash of nervousness. France has its issues and tried to sweep them away before getting the treatment. Of course, many in America have wondered out loud since that S&P downgrade of US debt: "Hey what about France?" Beyond having our pride ruffled and seeing those guys beat us again (remember we couldn't hold out on the pledge to stop eating French Fries), it was clear to many that in the world of serious debt reduction France should take their medicine, too.

As it turns out, France is taking its medicine, but now the question is how much is needed or are they tiptoeing like Greece and Italy, where small sips haven't sufficed when large gulps are needed. Earlier this week, France took additional measures on top of those pledged in August as their own finance minister remarked that their budget had to reflect slowing growth or it would lead to "catastrophe."

> Raise its VAT on restaurants
> Create an exceptional tax
> Save on health insurance
> New savings of €7.0 billion during 2012
> New savings of €65.0 billion over next five years
> Extend ban on short selling bank and financial stocks

Yesterday, word leaked of a rating cut despite moves made this week and that knocked the bloom off our equity market rally sending bank stocks lower. The spread between France and Germany's 10 year bonds are at a euro-era record although only about half those of Italy's. Keep in mind the euro-zone economic outlook was revised yesterday, and it looks like next year will be tough. Just as the Fed lowered its outlook for 2012 growth in America, the ECB did the same for the euro-zone.

> 2011 growth is now expected at 1.5% from 1.6%
> 2012 growth is now expected at 0.5% from 1.8%

Under such slow growth can France meet its obligations or would it have to make more sacrifices? One thing is for sure, if their debt rating is lowered from AAA it would cost them more and create a negative cycle. France wouldn't get the benefit of the doubt that the United States has thus far received and it would cost them more to borrow, although with fewer and fewer nations commanding the gold-standard rating maybe AA wouldn't be as devastating as it once was. But make no mistake, it's all about appearances and trust these days and losing your credit rating doesn't help.

Anglo-Saxon back In Vogue

On that note, I see the new narrative in Europe that "Anglo-Saxon" style is desired and comforting. Remember when our banking crisis was at its peak and the rest of the world began to teeter? Government officials and bankers in France and Germany blamed America and Great Britain for "Anglo-Saxon" banking that included reckless risk-taking. Since then, cracks in Europe have deepened, and we find it's anything but actions from Wall Street or the City that's hurting Europe, but decades of profligate borrowing and spending. So guess who's coming to the rescue to head Greece and Italy during this very pivotal moment in history?

In Greece a banker is taking the helm, and in Italy an economist praised throughout the nation as a savior and lauded for his "Anglo-Saxon" style. One newspaper cheered the selection of Mario Monti, saying he was "one of the most Anglo-Saxon of Italy's public figures." Say what? So, now its Anglo-Saxons to the rescue, are they serious? It's amazing how things change.

Today's Session

Equity futures look solid this morning, due in part to strong earnings out of Disney (NYSE:DIS) which saw a surge in theme parks and TV (ESPN made out big time on college bowl games) and reinforced the notion we avoided a double dip recession. There is still tons of resistance up to 12,600 but the bias is to the upside. Moreover, the market took a big gut shot which is the kind of test it must endure.