ZEW Economist Friedrich Heinemann on France’s Credit Rating

The rating agency Standard & Poor’s has decided to downgrade France’s credit rating. Friedrich Heinemann, head of the Research Unit “Corporate Taxation and Public Finance” at ZEW Mannheim and professor at Heidelberg University, has commented on this matter:

“France’s downgrade is justified. The country did not use the strong recovery after the pandemic to reduce its deficits. This downgrade is very bad news for the eurozone. Of the big three euro countries, only Germany still has a top credit rating.

The loss of confidence in France as a debtor weakens Europe in several ways. Firstly, France risks falling into a downward spiral of rising interest rates and debt, following the path of Italy. Secondly, hopes for new cheap EU loans evaporate when such an important Member State is no longer a fully reliable guarantor of EU debt.

Much of the responsibility now lies with the European Commission and the ECB. Within the framework of the reformed debt rules, the Commission must put pressure on France to start consolidating. The ECB should avoid giving the impression that monetary policy is protecting even unsound states from rising yields on their government bonds.”