Quest: France is embarrassing but Greece is the danger

(CNN) – The ratings downgrade of France by Standard & Poor’s is embarrassing, but its economic impact will be limited – and the country will embark on a full court press to pretend it doesn’t matter.

Let’s not forget the U.S. lost its triple A rating; the dollar is still being printed and economy is doing better. But this will pile pressure on the eurozone: S&P has a history of jumping first, and other agencies could follow.

The risk is in its downstream hit on Europe’s bailout fund, the European Financial Stability Facility. The fund only holds its top rating by virtue of the countries whose cash it is backed by, and France is one of the major players.

Eurozone nations slapped with downgrades

The French downgrade could hit the bailout fund’s triple A rating, which will make it harder to raise sufficient funds from investors to feed the bloc’s needs for cash. That could cause hiccups for the bailout programs already in place.

But of far more importance Friday was news that creditors have failed to reach a deal with the Greek government on haircuts to the country’s debt.

Greek talks break down

According to a statement from Greece’s creditors, plans to slash the value of the debt in half, as part of the country’s negotiations to get its second bailout, have stumbled. This could prove a ticking time bomb if it is not defused. The news means Greece is once again the big crisis.

The eurozone rescue plan is falling to bits but it’s Greece we need to watch, not France.

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