In today’s “terrifying hypothetical questions that nobody wants to hear or answer” news, we have the New York Times, which predicts that after successive financial meltdowns in Greece and Italy, France might be next.
Nelson Schwartz ponders the question that no one wants to ask in today’s Times, writing:
“One crucial gauge of investor sentiment, the difference between what France pays to borrow versus what Germany pays, has doubled since the beginning of October, and last week reached its widest point since the formation of the euro currency zone in 1999. Meanwhile, speculation that France could soon lose the sterling triple-A rating on its sovereign debt intensified after Standard & Poor’s mistakenly told clients on Thursday that it was downgrading France’s debt.”
Okay so poor move on S&P’s part for sure, and overhauls in Italian and Greek leadership may have slowed the bleeding, but the problem is that French banks are heavily invested in Italy:
“The roots of France’s exposure to Italy lie in the decision by French banks to expand aggressively over the last decade by acquiring banks there and operating big branch networks. BNP Paribas, which bought Banca Nazionale del Lavoro of Italy five years ago, holds 12.2 billion euros in Italian sovereign debt, despite reducing its Italian bond holdings by 40 percent since the summer and whittling its exposure to Italy to 1 percent of its total commitments.”
All right, but before anyone panics, Schwartz takes note: Italy is too big to fail, it has more money than Greece, Ireland or Portugal, and the French economy is not exactly about to topple like so many dominoes.
“When it comes to France itself, its economy is much healthier than that of Italy. Unlike Italy, where debt equals 120 percent of gross domestic product, the debt-to-G.D.P. ratio of France stands at a much more manageable 85 percent. The French economy has also grown at about twice the rate of Italy’s over the last decade.”
Phew, so. I guess we can all rest easy then?
Read more about the euro in the latest issue of Carnet Atlantique!