President was trailing Socialist rival François Hollande. Now his image as the 'Caped Crusader' of global finance is dented
With less than 100 days until the first round of the French presidential race, the credit-rating downgrade in Paris will seriously complicate Nicolas Sarkozy's already difficult bid for re-election.
"If France loses its AAA, I'm dead," Sarkozy told aides in October, according to Le Canard Enchaîné. The president has staked his re-election on convincing France that he is the only person with the guts, strength and character to save it from economic doom. The rating cut will seriously dent his image as the Caped Crusader of the financial world.
Last year the Sarkozy camp defined the AAA as the holy grail of France, not just a point of pride but the cornerstone of protecting the French social model, its ever-present state and generous social safety net. Alain Minc, the economist and Sarkozy advisor, called the AAA, which Paris has clung to for 36 years, a "national treasure". Defending the rating became Sarkozy's mission as he raced between international summits, claiming he would save the eurozone and solve the sovereign debt crisis.
Without the AAA France, which has not balanced a budget since 1974, will pay billions of euros a year in extra interest payments. With low to non-existent growth, a vast social security deficit and a serious hole in state coffers after decades of the French state living beyond its means, the downgrade means France will find it harder than ever to rein in its state finances.
Last month it had become clear there was no way to save the AAA, because of French growth predictions seen as too optimistic. There was also the threat of recession, budget cuts judged to be inadequate, and the huge exposure of its banks to the sovereign debt crisis in Greece, Portugal, Italy and Spain. Sarkozy and his government began downplaying the importance of the AAA to prepare public sentiment. There were cross words across the Channel as some French politicians pointed out the unfairness of the ratings agencies by suggesting that if France was to sink, the debt-ridden UK should too.
Losing the AAA "would be an additional difficulty but not unsurmountable," Sarkozy told Le Monde, rehearsing the tone he is likely to take this weekend. Anyway, whisper some in Elysée circles, the US had already had its rating downgraded and survived.
This change of rhetoric might not convince the French public. The downgrade will increase the financial gloom across France in an election year dominated by the economy.
With the Socialist François Hollande leading the polls and Marine Le Pen of the extreme right Front National biting at his heels, Sarkozy is under severe political pressure over the recession and unemployment.
Last month more than half French voters felt losing the AAA would have a big impact on their lives. France is the world's "most pessimistic" country in terms of economic outlook, with the lowest recorded score in more than 30 years, according to a poll this month. "Even in 1978, after the second oil crisis that called into question an entire economic system, the French have never shown themselves as pessimistic as today," Gallup International said.
Up to 15m French people have trouble making ends meet at the end of the month.
One key impact would be on local authorities, many heavily in debt to banks after taking out large loans. French communes have been described as "hundreds of little Greeces" by the economist Karine Berger in the Nouvel Observateur.
At the Elysée some advisers have been briefing political journalists that the fallout from the downgrade is containable and will last 48 hours, not four months, shoring up the mood for the presidential election in April and May.
The downgrade will make political ammunition. Last month Hollande said: "There's a triple failure by Sarkozy: failure in his obligation to increase growth, we're in a recession; failure to reduce unemployment; and failure to reduce the deficit."
Sarkozy will no doubt reply that the Socialists have not done enough to support his efforts to draw up a law on balancing state budgets.