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S&P To Cut France's Credit Rating – What It Means

S&P To Cut France's Credit Rating – What It Means

BondsOnline, January 13, 2012

Dow Jones announced on Friday that “Standard & Poor's Ratings Services has notified the French government of its decision to downgrade the country's credit rating, a senior French government official said Friday, a move that marks the long-awaited blow to France's international standing and knocks the country out of the top financial league of the euro zone.

"S&P has informed the French government that the country's cherished triple-A rating will be lowered one notch to AA+. S&P has also notified other European governments of looming ratings downgrades, according to people familiar with the matter.

"One person familiar with the matter said an S&P notice is being circulated among euro-zone governments and that an announcement "could be imminent."

"A senior European government official told Dow Jones Newswires that Germany is not among the countries to be downgraded by S&P."

What does this mean?

A downgrade of France may the most impactful event to address structural problems in Europe. France has closed ranks with Germany and held a hard line on structural reform. A downgrade may now force France to become the defender of the Mediterranean countries, instead of shadowing Germany as it does now.

With France’s weight the supposedly “weak” countries might get additional relief from the European Central Bank. A rift between Germany and France may mark the beginning of the end of the euro crisis, but the process will still be messy and disruptive.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.