Friday, January 23, 2009
France’s AAA Rating May Be Under Stress as Debt Rises, ING Says
The extra yield investors demand to hold 10-year French bonds instead of the benchmark German bunds widened to 57 basis points on Jan. 21, the most since the euro’s debut a decade ago. The average yield spread in the past 10 years was 8 basis points.
France is no longer a currency issuing nation, meaning that the government can no longer spend by simply crediting bank accounts. If the government needs money it must borrow--either from the savings of its citizens, or those of foreigners. This means the debt is a real problem and must somehow be financed. That is not the case of countries like the U.S. or Japan or Britain or any other sovereign currency issuer that can spend by merely crediting bank accounts. In these cases there is never a risk of a payments crisis, but in France there is. That risk is also present in the other Eurozone members.