French banks are feeling the pain today. Some CNBC commentators say that France should have been downgraded before the USA. Marketwatch says that France might be the next downgrade.
Another commentator noted that France is a lynchpin of Euro rescue efforts. If France were downgraded, it might not be able to contribute to the European Financial Stability Fund, or EFSF. That might explain why S&P does not want to downgrade France: doing so might break the Euro. For the English commentator, the current markets are reminiscent of the breaking of the pound out of the European Exchange Rate Mechanism in 1992.
The treaty of Maastricht, signed in 1992 called for governments to maintain an annual deficit of 3 percent or less and to have debt no higher than 60 percent. Although Japan leads the league in government debt as a percentage of GDP at 225 percent, EU members Italy and Belgium are at close to 100 percent. France is at 83 percent. These countries have violated the rules of the treaty for years, and as a a result, they cannot call on today’s problem nations to be forced to adhere to the terms of the treaty.