Floundering France can offer an opportunity for eurozone recovery

DOWNGRADING of France as a triple A credit rated state can usher in a new phase in the eurozone crisis.

President Nicolas Sarkozy has strutted the world stage purporting to be the foremost EU statesman as part of Franco German leadership, along with Angela Merkel. This Merkozy double act, with their endless bilateral summits, pretended that France had equal economic credibility with Germany. That facade is now over. The exposure of French banks to Greek debt default and their dire national debt/GDP ratio meant a false picture was presented by the Elysée incumbent. Sarkozy is living on borrowed time. Opinion polls predict defeat in the forthcoming presidential race in May.

Contagion of the eurozone crisis has shifted from peripheral states to core countries, leaving only Germany, Netherlands, Finland and Luxembourg uncontaminated. The short-term impact of the Standard and Poor’s downgrade may mean more costly bailout finance as €180 billion of the European Financial Stability Facility (EFSF) is underwritten by France and Austria. However, the impact on EU politics has beneficial upsides for Ireland. We need to fast forward on the political isolation of Germany and Merkel. Since the December summit, German technocrats continue their preoccupation with new intergovernmental constitutional law. The third draft of their quasi treaty text seeks to enshrine fiscal rules in our Constitution. A debt/GDP ratio ceiling of 60% (ours is currently heading for 120%) is required. No future ESM cash will be payable unless we comply.