Christina Noyer, Governor of the Central Bank of France, quipped that the ratings agencies “should start by downgrading Britain which has more deficits, as much debt, more inflation, less growth ” as France. Hume thought that was interesting coming from a central bank governor that doesn’t actually have a French monetary policy to govern. For surely the reason that France is more likely to get downgraded than Britain is that France has one less macroeconomic policy lever to pull than Britain.
That simple fact means, with absolutely no disrespect to the French, that the degree of macroeconomic management is likely to be better in Britain than in France. Simply put, if Britain needs to tighten fiscal policy to stabilise its debt, it can offset the negative growth consequences by keeping monetary policy looser for longer. Such an option is not available to Mr Noyer. Hume reckons Standard and Poors have figured that one out.
Now Hume agrees that monetary policy in the Euro area is likely to be looser for longer than the ECB had hoped a year ago; but that has little to do with fiscal austerity in France, and everything to do with the fact that the Eurozone could be on the brink of a serious down turn.
France is not alone, this same problem affects all euro area members — it’s just not fair.