Gains wiped on fears France will be downgraded

10th August 2011

A global stock rally caused by the US Federal Reserve's promise to freeze interest rates until 2013 – and possibly introduce more quantitative easing – has evaporated, with Wall Street losing a big chunk of the previous session's sharp gains, adds the Financial Times (paywall).

Attention has again turned to Europe, with news that President Sarkozy was locked in emergency talks with his ministers seeking ways to cut the country's deficit. That prompted rumours that France is likely to be next to lose its Triple A rating, and also talk that one of its banks could be in trouble in the current financial turmoil, leading to hefty double digit share price falls at the likes of Societe Generale and BNP Paribas.

Walt Kowalski comments on Mindful Money Shaun Richards' blog: "Shaun…why would a French sovereign downgrade affect the EFSF other than borrowing costs?"

Shaun Richards replies: "There are several issues here. As Portugal and Ireland have fallen out of the collective of EFSF backers the burden has risen on the others already albeit modestly. By my maths the French share is now just under 22%.

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