Theoretically at least, that rating — the highest a nation can have — allows France to borrow money from the markets cheaply.
But France pays more than nearly every country that has a Triple A 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, since the country has already lost the benefit of the rating, namely low borrowing costs.
No one is actually expecting France to default, but its higher yields reflect investor concern about the country’s 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.