LeMonde calls it a 'wake up call.'
From Reuters, June 1:
Standard & Poor's (S&P) decision to downgrade its rating on France's sovereign debt should in the short term deliver more political sting than pain in financial markets.
Days ahead of a June 9 EU parliamentary election, S&P cut France's long-term sovereign debt rating on Friday to "AA-" from "AA", citing expectations that higher than expected deficits would push up debt in the euro zone's second-biggest economy.
WHAT MARKET REACTION CAN BE EXPECTED?
Citigroup analysts said in a note on Wednesday that a downgrade could push the spread between French and German benchmark bonds out by 3-5 basis points (bps).
That would be a relatively minor impact, pushing the spread out to around 50 bps , roughly where it stood two months ago after the government hiked its budget deficit estimates.
WHAT'S THE IMPACT ON POLICY?
The downgrade adds pressure on President Emmanuel Macron's government to detail billions of euros in budget savings needed to keep its deficit reduction plans on track.After raising its estimates in April, the government now expects to cut its public sector budget deficit from 5.1% of economic output this year to 4.1% next year, with aim of reducing the fiscal shortfall to an EU ceiling of 3% by 2027.S&P said it expected France to miss its 2027 target, forecasting the deficit would stand at 3.5% of GDP then....
....MUCH MORE
3.5%? Pikers. How are you going to get a Potemkin economy at that rate?
Boom times American-style, baby! 6 1/4% of GDP and more to come in 2025 - 2026!
