PARIS — The interest rate France pays to borrow money rose again Monday — and along with it fears that the country will lose its cherished AAA credit rating.
Theoretically at least, that rating — the highest a nation can have — allows France to borrow money from the markets cheaply.
But France pays more than nearly every country that has a Triple A rating from all three of the major ratings agencies, except Australia, whose economy is less than half the size, and tiny Austria, which pays about the same rate.
On Monday, the yield on France's 10-year bond — the usual yardstick for a country's borrowing costs — rose 0.05 percentage points to 3.42 percent. That's nearly twice Germany's and significantly more than the roughly 2 percent paid on 10-year U.S. Treasury notes.
Some say with yields that high, France retains the AAA rating in name only, since the country has already lost the benefit of the rating, namely low borrowing costs.
No one is actually expecting France to default, but its higher yields reflect investor concern about the country's fundamentals: its overall debt load and the annual budget deficits it runs. And, since the credit ratings of France and Germany underpin the eurozone stability fund set up to tackle Europe's debt crisis, a change in the French rating could be seismic, affecting the entire European bailout plan.
Not to mention that a lower credit rating could mean that President Nicolas Sarkozy gets tossed out of office in next spring's presidential election.
"Let's not delude ourselves: In the markets, French debt is already not AAA," Jacques Attali, an economist and adviser to Sarkozy, told the La Tribune newspaper recently.
The government roundly denounced that comment, and Christian Noyer, the governor of the Banque de France, told the Le Figaro newspaper it was preposterous to think that France wouldn't repay its debts. That, in effect, is what a rating measures: It's the agency's assessment of how good a bet a country or a company is for investors.
Still, France hasn't balanced a budget in three decades, and its deficit ran 7.1 percent of its GDP last year — more than twice the legal limit of 3 percent in the 17-nation eurozone. It also is paying a significant amount to help bail out other troubled eurozone members such as Greece, Portugal and Ireland.
The importance of France's debt rating stretches way beyond the country's borders, since Europe's bailout fund derives its own Triple A rating from the ratings of Germany and France. In the wake of a French downgrade, the bailout fund would most likely need more money to keep its rating — and in this era of austerity and discontent with the euro system, most other euro countries will likely refuse.
A French downgrade, in other words, would rock the eurozone — a fact that underscores just how fragile the continent's bailout system really is.
At home, the credit rating also has psychological and political importance. Sarkozy is already suffering from very low poll numbers, and he and his conservative party both know that losing the rating could seal their fate in the two-round election next April and May.
Sarkozy has not yet said he's running, but it's widely assumed he'll be the UMP party's candidate.
Sarkozy has staked his credibility on meeting a series of deficit-reduction targets and balancing France's budget by 2016. In order to stay on track, his government has been forced twice this year to introduce a raft of extra cuts.
And many say those savings are still not enough, with growth so slow — France recently lowered next year's growth forecast to 1 percent.
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