Forex Market Commentaries - French Economy On Defcon 2

RWN (Rating Watch Negative) = Financial DEFCON 2 For France

Dec 15 • Market Commentaries • 4378 Views • Comments Off on RWN (Rating Watch Negative) = Financial DEFCON 2 For France

In November 1959, the Joint Chiefs of Staff created the DEFCON system so that a uniform readiness posture could be prescribed in the various military commands. Since the system was introduced, portions of the U.S. military have been placed at higher readiness levels on numerous instances. The DEFCON level is controlled primarily by the President and the Secretary of Defence, through the Chairman of the Joint Chiefs of Staff and the Combatant Commanders, and each DEFCON level defines specific security, activation and response scenarios for the troops in question.

The highest confirmed DEFCON ever was Level 2. During the Cuban Missile Crisis on October 22, 1962, the U.S. armed forces were ordered to DEFCON 3. On October 23, Strategic Air Command (SAC) was ordered to DEFCON 2, while the rest of the U.S. armed forces remained at DEFCON 3. SAC remained at DEFCON 2 until November 15. The next DEFCON Level 2 was during a Soviet missile test in the Pacific in 1989. For much of the Cold War, U.S. ICBM sites were at DEFCON 4, rather than 5.

The third time the United States reached DEFCON 3 was during the September 11, 2001 attacks. Secretary of Defense Donald Rumsfeld ordered the increased DEFCON level…

The inevitable downgrading of France’s AAA rating must be getting quite close as the drumbeat of objection is getting louder by the day. Despite certain influential bodies attempting to play down the impact of a downgrade, whilst questioning the legitimacy of the ratings agencies, the severity of a downgrade cannot be underestimated. The Franco-Germanic union as typified by Merkel and Sarkozy, despite its occasional public disagreements, has been steadfast and devoted in its search for a solution to the European sovereign debt crisis. A downgrading of France’s rating would indirectly derail the rating of the EFSF which could severely compromise the ability of the Eurozone to raise the further funds required in order to firefight the blaze coursing through Europe.

To witness respected policy makers resorting to undignified and childish; “please Sir he should be on the naughty list too” statements and finger pointing in the direction of the UK is deeply troubling. Not that Noyer isn’t correct, the UK is the sick man of Europe in financial terms. Being able to unilaterally rescue its banking system meant its deficit could grow out of control as it’s overall debt spiralled, how this ‘fooled’ the ratings agencies still remains a mystery.

A downgrade of France’s AAA credit rating would not be justified and ratings agencies are making decisions based more on politics than economics, the European Central Bank policymaker and head of France’s central bank Christian Noyer said on Thursday. Speaking in an interview with local newspaper Le Telegramme de Brest to be published later on Thursday, Noyer has also questioned whether the use of ratings agencies to guide investors was still valid.


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In the arguments they (ratings agencies) present, there are more political arguments than economic ones. The downgrade does not appear to me to be justified when considering economic fundamentals. Otherwise, they should start by downgrading Britain which has more deficits, as much debt, more inflation, less growth than us and where credit is slumping.

Noyer is also unhappy about the critical comments from ratings agencies following last week’s EU summit in Brussels. He believes that such comments weakened the positive sentiment manifest in the markets following the agreement to draft a new treaty for deeper integration in the euro zone.

Frankly, the agencies have become incomprehensible and irrational. They threaten even when states have taken strong and positive decisions. One could think that the use of agencies to guide investors is no longer valid.

French Foreign Minister Alain Juppe said on Wednesday that decisions by rating agencies were “sometimes subjective and political,” and that any loss of France’s top-notch AAA rating would be regrettable but not disastrous.

Standard and Poor’s is due to decide whether or not to downgrade euro zone countries in the coming days following an EU agreement last Friday to forge tougher fiscal rules.

French lenders Société Générale, BNP Paribas and Credit Agricole fell between 6.7% and 8% yesterday as rumours persisted that the extent of their bad loans to indebted eurozone countries would lead to France losing its AAA status within the next few days. Credit Agricole, which gave a second profits warning this year, said it would record a €2.5bn (£2.09bn) loss this year, chiefly due to write-downs in its investment banking unit, and it would not pay a dividend in order to retain capital. Credit Agricole also suffered further bad news as French rating agency Fitch downgraded it a couple of notches;


Fitch Ratings-Paris/London-14 December 2011: Fitch Ratings has downgraded Credit Agricole’s (CA) Long-term Issuer Default Rating (IDR) to ‘A+’ from ‘AA-‘ and its Viability Rating to ‘a+’ from ‘aa-‘ and simultaneously removed them from Rating Watch Negative (RWN). The Outlook on the Long-term IDR is Stable. Fitch has also downgraded certain entities of the group.

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