Would French AAA loss hurt pride or finances?
The widespread presumption is that France is about to lose its cherished AAA, that Standard & Poor's is poised to announce a downgrading of French sovereign debt, and that Moody's may not be far behind.
It is assumed that the French authorities know that's about to happen - and they were getting their backlash in early yesterday, when pointing out that in some ways the UK's financial position looks weaker than France's, and yet the UK seems in no imminent danger of losing its AAA.
I have explained before why it's not the debt and deficit ratios in the eurozone on their own that have increased the risk of default, but the structure of the eurozone (see my post, The eurozone's borrowing costs may stay lethally high).
So although the frustration of the French finance minister and central bank governor with the credit rating agencies may be understandable, some would see it as a failure to see what really needs sorting - which are the interrelated issues of inadequate control from Brussels (or Berlin) over budget-making decisions by individual eurozone countries (all of them, including France) and the prohibition on European Central Bank purchases of sovereign debt (because most would argue that turning debt into money is preferable to default).
But aside from the national humiliation for France of losing the AAA while the UK keeps it (but let's not become hubristic, that may not be forever), would it matter in an economic sense?
That's difficult to judge - partly because most bankers and investors to whom I speak have been viewing France as though it no longer has an AAA rating for many months now.
You can see that in the price France has to pay to borrow relative to fellow AAA-credit (for now) Germany. When France borrows for 10 years, it pays an interest rate well over a percentage point higher (based on 10-year government bond yields).
So the perception that French finances are weaker than Germany's are already imposing a significant cost on France. And that matters a good deal, because in the coming year the French government has to borrow a huge amount.
Adding together repayments of existing debt, interest owed and new borrowing, France needs to find something like 400bn euros next year, to stay afloat. So the extra 1% or so it has to pay to borrow costs French taxpayers £4bn a year.
But a French downgrade is not as alarming as it might be. According to an analysis by Royal Bank of Scotland, France is less vulnerable than some countries to contagion from loss of AAA to increased funding difficulties for its banks.
There is always a significant risk that when a government is downgraded, that is followed by downgrades for banks, whose ultimate guarantor and protector is the state. And there may well be downgrades for Credit Agricole, Soc Gen and BNP Paribas.
But RBS believes their existing ratings depend less on implicit government support than the ratings of other banks - so perhaps they won't suffer too much from a French government downgrade.
That said, there is a risk that their holdings of French government debt would fall in value, which would create the perception that they're less strong. And it may therefore become harder and more expensive for them to borrow.
Or to put it another way, France's loss of AAA would not be a disaster for French banks, but it's not a reason to crack open the champagne.
Now I do need to point out one additional thing, in the light of my post of yesterday.
Although the European Central Bank last week made it easier for banks to borrow from it and from national central banks, by widening the categories of asset the central banks will take as collateral for loans, the more that banks pledge their assets to the central banks, the fewer assets are available as de facto security for the debt they issue to investors (stay with me, please).
Which may have the paradoxical effect of actually making it harder for European banks to refinance the hefty 800bn euros debt that matures in 2012 (if there are no free or unpledged assets left in the kitty, lending to a bank looks riskier).
As it happens, French banks have to refinance about 10% of all the debt they've sold to investors in 2012 - so it would be a pain for them if the climate for doing so were to worsen even more (ahem).
Or to put it another way, the unprecedented massive swapping by banks of their assets for central-bank loans is not a permanent solution to the strains in the eurozone banking market. It will work only till every last asset has been pledged to the central banks - and then, as I said yesterday, goodness only knows what follows.
But here's the good news about France losing its AAA (were that to happen): it would be nowhere near as serious as a further downgrade in Italy's sovereign rating - because that would take Italy uncomfortably close to junk rating, at a time when the Italian government and Italian banks have to borrow colossal sums.
But that's a horrible story for another day.