PARIS — The interest rate France pays to borrow money rose again Monday — and along with it fears that the country will lose its cherished AAA credit rating.
Theoretically, at least, the AAA rating — the highest a nation can have — allows France to borrow money from the markets cheaply.
But France pays more than nearly every other country that has an AAA rating from all three of the major ratings agencies, except Australia, whose economy is less than half the size, and tiny Austria, which pays about the same rate.
On Monday, the yield on France’s 10-year bond — the usual yardstick for a country’s borrowing costs — rose 0.05 percentage points to 3.42 percent. That’s nearly twice Germany’s and significantly more than the roughly 2 percent paid on 10-year U.S. Treasury notes.
Some say with yields that high, France retains the AAA rating in name only because the country has lost the benefit of the rating, namely low borrowing costs.
No one is expecting France to default, but its higher yields reflect investor concern about its fundamentals: its overall debt load and the annual budget deficits it runs.
And since the credit ratings of France and Germany underpin the eurozone stability fund set up to tackle Europe’s debt crisis, a change in the French rating could be seismic, affecting the entire European bailout plan.
Not to mention that a lower credit rating could mean that President Nicolas Sarkozy gets tossed out of office in next spring’s presidential election.
“Let’s not delude ourselves: In the markets, French debt is already not AAA,” Jacques Attali, an economist and adviser to Sarkozy, told the newspaper La Tribune recently.
The government roundly denounced that comment, and Christian Noyer, governor of Banque de France, told Le Figaro that it was preposterous to think that France wouldn’t repay its debts.
Still, France hasn’t balanced a budget in three decades, and its deficit ran 7.1 percent of its GDP last year — more than twice the legal limit of 3 percent in the 17-nation eurozone.
“The question is not if France will be downgraded; the question is to know when France will be downgraded,” said Marc Touati, an analyst with Assya Compagnie Financiere.
France had a preview last week of what a lower rating might look like when a mistaken alert by Standard & Poor’s told some clients Thursday that France had been downgraded.
The agency corrected the note an hour and a half later, calling it a technical error and confirming that France’s outlook was stable.
In the interim, however, already- rising bond yields jumped, and on Monday, they closed 0.26 percentage points higher than where they started Thursday.
