Tuesday, October 18, 2011

Moody's Threat

A Socialist candidate is nominated, and, as if by clockwork, Moody's, the rating agency, puts France on its watch list for a downgrade. It will be convenient indeed if, in three months' time, the ratings gnomes are sufficiently impressed by further austerity measures that they extol the Right's "responsible management" of the budget. Of course responsible management has nothing to do with the market's anxieties or with the growing spread between German and French sovereign debt (now 100 basis points). The worry is French bank exposure to Italy and Spain. The government may need to shore up the banks, and that is what has the market worried.

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