On Friday France’s finance minister said that the S & P downgraded France’s AAA credit rating to AA+. The S& P downgrade is a blow to the euro zone’s ability to contain its debt crisis. France is the second largest contributor to Europe’s bailout fund, the EFSF.
John Makin, a former consultant to the IMF and Treasury Department and resident scholar at American Enterprise Institute, told Bloomberg’s Mark Crumpton that France’s downgrade was not a surprise and not good news.
Makin agreed that a domino effect may impact other countries in Europe, translating into higher borrowing costs.
When asked what the downgrade will do to the potency of Europe’s rescue fund, Makin admitted that it weakens the potency and puts pressure on Germany to underwrite the EFSF.
“Six ago months France and Germany were in the central core of good credit in the European Monetary System, now we are down to Germany only.”
France’s credit downgrade will increase the costs to borrow money and make it more difficult to sell long term paper.
The S & P is expected to possibly downgrade more European countries at the closing bell in a few minutes, placing more countries on credit watch.
This is a developing story.