After weeks of speculation, Standard & Poor’s has finally downgraded France, alongside eight other euro-zone countries. Europe’s second-largest economy saw its coveted triple-A rating slashed one notch to AA+ by the agency. S&P added that the outlook on the long-term rating is negative. Exactly 100 days before voters go to the polls in France’s next presidential election, it was an inauspicious Friday (the 13th) for the incumbent, Nicolas Sarkozy.
On 24-hour news channels in Paris, even before S&P made its decision official, French economists seemed to take the news in stride, arguing markets may already, at least in part, have anticipated the downgrade. But the political blow is clear, as Sarkozy’s rivals from the far-left, far-right, and parties in between rained a glib parade of invective on the struggling president, punctuated with the word “failure.” To some extent, the reaction is of Sarkozy’s own making. And if the hyperactive French leader wants a second term in office in May, analysts say he has his work cut out for him.
In what is now seen as a tactical error, Sarkozy and his center-right UMP party associates initially portrayed keeping the triple-A rating as a dramatic imperative, using it to justify austerity and raising the specter of a downgrade to scare the public about allegedly less-responsible opponents. In October, days after François Hollande was chosen in a primary to be the Socialist Party’s 2012 candidate, Finance Minister François Baroin declared that, were the Socialist Party in charge, it would see “France’s rating downgraded within two minutes.”
Another concern for Sarkozy’s flagging election hopes is how much populists like far-right National Front leader Marine Le Pen can exploit the triple-A slash.
But once the coveted rating seemed lost—pundits as early as November pointed to record interest-rate spreads with Germany to claim France’s golden rating was effectively already gone—its importance was suddenly, dramatically downplayed. A month ago, Sarkozy, who has looked to position himself as best able to “protect” the nation, called it “one more difficulty, not insurmountable.” But having played up a cause the general public was hardly well-versed in beforehand, and lost his bet, Sarkozy’s credibility has suffered further.
In an appearance on a national evening newscast on Friday to confirm the rating cut, the same Finance Minister Baroin who chided the Socialists now said, “You have to keep your cool. It’s necessary not to frighten the French people about it.”
In fact, Friday’s ratings-cut news may finally kickstart a lagging campaign. So far, the ambient economic uncertainty has made for an odd, slow start that some have compared to the drôle de guerre, or phony war, that preceded hostilities in World War II. Sarkozy has yet to declare his widely expected bid for re-election, instead launching controversial new reforms, ostensibly to draw attention away from his poor record, while Hollande has yet to release his presidential platform. Will S&P’s salvo mean it is open season? And will it strengthen the Socialist challenger, or send voters seeking safety in the devil they know?
In his traditional New Year’s Eve televised address, Sarkozy told the nation that “neither markets nor agencies” would make decisions in France’s place. But he had been widely quoted, and now again all the more after the S&P cut, as having said privately, “If we lose the triple-A, I’m dead.” Indeed, a recent French poll found 68 percent believed losing the rating would be a failure for Sarkozy. This week, even before the downgrade, another pollster measured Sarkozy’s approval rating at an abysmal 30 percent, matching his worst-ever grade as president. Yet another found that he is the least popular incumbent ever with re-election on the line. With 100 days to go before April’s first-round ballot, unemployment is at its highest since 1999, and rising. And Hollande is crushing Sarkozy in head-to-head polls, 57 to 43.
Another concern for Sarkozy’s flagging election hopes is how much populists like far-right National Front leader Marine Le Pen can exploit the triple-A slash. Anti-euro and protectionist, Jean-Marie Le Pen’s daughter and more-telegenic successor has sought support from working-class voters disillusioned by Sarkozy. Every new suggestion that German Chancellor Angela Merkel wears the pants in the Merkozy twosome at the vanguard of European Union decision-making provides a new occasion for Le Pen to stump in defense of French sovereignty.
Despite Sarkozy’s reformist posturing, markets have rewarded Germany’s diligence in driving through deep structural reforms where France has lagged. (As the Centre for European Reform puts it, “For the first time in the history of the EU, Germany is the unquestioned leader, and France is the No. 2.”) So far, to counter the National Front’s sovereignist objections without expensive promises, Sarkozy’s party has sharpened its divisive nationalistic rhetoric against immigrants, repeating a tactic he used with success in 2007. But a new survey Thursday, before the rate cut, placed Le Pen only two points behind Sarkozy (21.5 percent to 23.5) in polling ahead of April’s first presidential round. Le Pen has no chance of winning the presidency, but a repeat of her father’s 2002 performance, when he beat the outgoing Socialist prime minister into the second round, can’t be ruled out. And it will be lost on no one, not markets or Marine Le Pen, that S&P declined to downgrade Germany’s triple-A rating on Friday, making the asymmetry official.
But Sarkozy rivals’ would be wrong to revel in schadenfreude. France’s chronic deficit (it hasn’t balanced a budget since 1974), its stubborn reticence to reform its overburdened social-welfare system, and its banks’ deep ties to even less-responsible neighbors (France’s banking sector is the most exposed to Greek and Italian debt), have eroded France’s prerogative on its own future and tie its next leader’s hands. Those problems won’t magically disappear on inauguration day in May, whether or not Sarkozy does. Indeed, S&P’s downgrade statement Friday warned that there is “at least a one-in-three chance that we could lower the rating further in 2012 or 2013.”