PARIS (Reuters) – It was the week the euro zone debt crisis reached France, one of the twin pillars of the European currency alongside Germany.
As jitters over Paris’ prized top-notch AAA credit rating took hold, President Nicolas Sarkozy returned from the beach to order up new austerity measures. Then panic selling of French bank shares and an abrupt halt to economic growth added to France’s plight.
The sight of the euro zone’s number two economy buffeted by rumours and investor anxiety in the midst of the holiday season raised existential questions about European monetary union that will confront Sarkozy and German Chancellor Angela Merkel when they meet in Paris next Tuesday.
The fragile edifice of support for weaker European states would start to crumble if France, the second contributor to the euro zone’s rescue fund, were to face a debt downgrade.
All three major ratings agencies reaffirmed this week that no such downgrade was in the works, but that didn’t suffice to calm markets.