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CREDIT RATING

Sarkozy plays down effect of AAA loss

President Nicolas Sarkozy appeared on Monday to accept that France is facing a downgrade of its triple-A credit rating, when he declared that he would overcome this challenge to his policy.

Sarkozy plays down effect of AAA loss

“It would be another difficulty, but not an insurmountable one,” he said in an interview with the daily Le Monde. “If they decide to take it away from us we’ll face the situation with sang froid and calm.”

Sarkozy, who is facing a tough re-election battle next year, has staked much of of his credibility on preserving France’s top debt rating.

But markets have not been convinced that the EU’s latest “fiscal pact” will be strong enough or quick enough to prevent the risk of a sovereign default in the eurozone, which would in turn damage French banks.

Two agencies, Standard & Poor’s and Moody’s, have warned that they are putting France and its EU partner’s debt under scrutiny, and markets see Paris as likely to drop one or even two rungs on the ratings ladder.

“What counts more than anything is the credibility of our economic policy and our determined strategy to reduce spending. We will scrupulously honour all the engagements that we have made,” Sarkozy said.

The French leader’s guarded admission follows those of several senior French officials who, over the weekend, appeared to be preparing the ground for the increasing likelihood of a credit downgrade.

COVID-19

Court turns down AfD-led challenge to Germany’s spending in pandemic

The German Constitutional Court rejected challenges Tuesday to Berlin's participation in the European Union's coronavirus recovery fund, but expressed some reservations about the massive package.

Court turns down AfD-led challenge to Germany's spending in pandemic

Germany last year ratified the €750-billion ($790-billion) fund, which offers loans and grants to EU countries hit hardest by the pandemic.

The court in Karlsruhe ruled on two challenges, one submitted by a former founder of the far-right AfD party, and the other by a businessman.

They argued the fund could ultimately lead to Germany, Europe’s biggest economy, having to take on the debts of other EU member states on a permanent basis.

But the Constitutional Court judges ruled the EU measure does not violate Germany’s Basic Law, which forbids the government from sharing other countries’ debts.

READ ALSO: Germany plans return to debt-limit rules in 2023

The judgement noted the government had stressed that the plan was “intended to be a one-time instrument in reaction to an unprecedented crisis”.

It also noted that the German parliament retains “sufficient influence in the decision-making process as to how the funds provided will be used”.

The judges, who ruled six to one against the challenges, did however express some reservations.

They questioned whether paying out such a large amount over the planned period – until 2026 – could really be considered “an exceptional measure” to fight the pandemic.

At least 37 percent of the funds are aimed at achieving climate targets, the judges said, noting it was hard to see a link between combating global warming and the pandemic.

READ ALSO: Germany to fast-track disputed €200 billion energy fund

They also warned against any permanent mechanism that could lead to EU members taking on joint liability over the long term.

Berenberg Bank economist Holger Schmieding said the ruling had “raised serious doubts whether the joint issuance to finance the fund is in line with” EU treaties.

“The German court — once again — emphasised German limits for EU fiscal integration,” he said.

The court had already thrown out a legal challenge, in April 2021, that had initially stopped Berlin from ratifying the financial package.

Along with French President Emmanuel Macron, then chancellor Angela Merkel sketched out the fund in 2020, which eventually was agreed by the EU’s 27 members in December.

The first funds were disbursed in summer 2021, with the most given to Italy and Spain, both hit hard by the pandemic.

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