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And then there were four…

Thursday 19 January 2012 – by David Marsh

 Things will really start to go downhill now that there are only four top-rated European countries within the economic and monetary union says David Marsh, co-chairman of the Official Monetary and Financial Institutions Forum and ex-European editor for the FT.

Seldom in monetary history will an event so frequently forecast and so intrinsically banal have triggered such far-reaching consequences.

Standard & Poor’s downgrading of France from triple A status is of monumental significance. From now on, things could start to go downhill in a big way.

Forget the ringing declarations of Franco-German solidarity, the ritual denunciation of rating agencies as Anglo-Saxon dark forces and the stalwart Parisian affirmations of ‘business as usual’. Put to one side, too, any comparison with the US downgrade in August (since when American Treasury yields have been in free fall).

Developments in Europe are (and have been for 150 years) the result not of absolute rankings, but of relative positions, especially between Germany, Britain and France. Much will change as the result of Friday’s S&P; ratings drop for France and eight other countries. Probably, very little of it for the better.

The movie we’re watching is actually an old one. Each country is reverting to type. S&P;’s stripping of France and Austria from the top notch list, the downgrading of Spain, Italy and five other members of economic and monetary union and the maintained top credit rating for Germany and the Netherlands confirm the ‘winner takes all’ polarisation of the euro area.


The Germans will become not more generous, but more self-righteous, because they fear that, if they stray from the path of orthodoxy, France’s fate will be theirs.

There are now five top-rated European countries outside EMU – Denmark, Norway, Sweden, Switzerland and the UK – and only four within – Germany, Finland, Luxembourg and the Netherlands.

The first group (because of Germany’s preponderance) still has a higher population – 104m against 90m. All the same, at a stroke, EMU’s claim to represent the best of Europe in strength and stability has been washed away.

Turning the EFSF rescue fund into a useable financing vehicle will become immeasurably more challenging now that its Triple A rating is all but gone.


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