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Thursday, 15 December 2011

Moody and poor: is France going under M. Noyer?

Now it's getting nasty from the French. Its central bank chief has suggested that Britain's debt should also be downgraded, inviting the obvious response that:
  1. The government that cause the UK's financial problems has been replaced.
  2. The UK government has a deficit reduction plan that has been shown to the rating agencies and the markets, with which they are broadly happy - hence the lower yield on UK government debt that on German debt, not just French debt, although UK gilts yield about 100bp less than their French equivalent.
  3. The UK is not tied into the euro-zone and has no obligations to lend to other countries to suuport its currency.
  4. Having an independent currency has allowed the UK government to deflate by 15%, so that the odds of default on their sterling denominated debt has reduced proportionately.
  5. UK government borrowing is around 90% of GDP.  French government borrowing is about 98% of GDP.
  6. YK government debt duration is about 9 years, A lot of French borrowings mature soon.  New bonds will have to be issued at the relatively high yields.
Any central bank governor worth his salt could have figured that out.

Yet another EU summit has been called for early next year, amid fears that last weeks fiscal compact is falling apart.  A bit like last month's €1 trillion Chinese funding that has been swept under the carpet.

Which is a good time to remind the French that the Chinese still like the look of £100m of UK infrastructure products, that dozens, nay scores of Chinese firms are listed in London (none in Paris or Frankfurt) and that there is even one Chinese member of the London Stock Exchange. Just thought I would mention it.

While on the other hand, that great international financial bellweather the Dagong Global Rating Co has downgraded French government debt citing the fact that the French banking system's exposure to Portugal, Italy, Ireland, Greece and Spain has reached €852.36 euros. Which is rather a lot. Moody's has downgraded France's three big banks due to their difficulty borrowing money. The agency cut Credit Agricole and BNP Paribas from Aa2 to Aa3, and Societe Generale from Aa3 to A1.

I might add that the name of the Governor of the Banque de France, M. Noyer, translates into English as "to drown".

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