Paris, Berlin eye end of triple-A era

Wed Jan 4, 2012 9:10am EST
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By Leigh Thomas and Noah Barkin

PARIS/BERLIN (Reuters) - The German and French governments have both come to accept that the era when leading euro zone countries enjoyed the very best sovereign debt ratings is nearing an end, but a downgrade could shake Paris far harder than it does Berlin.

Markets have been bracing for a cut in the triple-A rating of France and possibly other top-rated euro zone members since Standard & Poor's warned in early December of a mass downgrade due to concerns about the bloc's two-year old debt crisis.

Such a move in theory makes it more expensive for countries to borrow, ruling out buying by certain types of investors as well.

If S&P were to follow through in the coming weeks and slash euro zone ratings across the board, economists say the financial and political backlash would be tolerable, as it has been for the United States since the rating agency controversially cut its debt last August.

But if France suffers a downgrade before Germany, as another rating agency Fitch has suggested, the level playing field that has existed between Europe's two biggest economies could be disrupted.

"There is a question about the balance of power if we see France downgraded first," said Mark Wall, an economist at Deutsche Bank in London.

"If we move to a world in which France is not triple-A, will Germans see themselves as carrying the financial bags for the rest of Europe? There may be a political impact at the national level."

The impact in France, where President Nicolas Sarkozy faces an uphill struggle to win a second term in a two-round April-May election, would certainly be greater if Paris gets hit first.   Continued...