The government of France is scurrying to protect its pristine AAA credit rating following a move to nationalize Franco-Belgian bank Dexia - a move that may cost Europe's second-largest economy billions of euros.
While the rescue of the struggling bank was seen as paramount in stemming the prospects of a failing European finance sector, the move will only tighten France's budget as it struggles to retain its high credit rating and scratch out a debt deal with Germany. "Rating agencies judge the sustainability of a country's debt," French economist Jacques Delpla, told Reuters. "[The Dexia deal] would be a one-off investment that could yield big profits, so even if France spends a huge amount recapitalising the entire bank system it should not affect its rating." Dexia's chief problem stems from its bank account history
of relying on short-term funding from money markets to bolster tens of billions of euros in long-term loans lasting several decades, Reuters reports. Over the weekend, leader of both Germany and France stated they will reach a resolution for Europe's debt crises by early November.