$name | Eurobank
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• The escalation of the debt crisis has put France’s top credit rating in question, as its budget and current account deficits are larger compared to other AAA euro area countries.
• Failure to tackle the euro area debt crisis would put the French public finances in peril, mainly through three channels: higher borrowing costs, injection of public funds for banks’ recapitalization and issuance of EFSF loans. • Debt servicing costs above 5% seem to be the threshold beyond which the sustainability of the French debt is in danger.
• In our baseline scenario, French public debt is projected to approach 90% of GDP in 2013, challenging its AAA status. Therefore, continued fiscal vigilance and steady primary surpluses are necessary to defend the AAA grade.