Efforts to calm European markets mount, but fail
Markets had rebounded by late in the day, but they're still fragile, economists say. Leaders of France and Germany have announced plans to meet next week to discuss Europe's financial troubles.
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Sarkozy cut short his holiday Wednesday and ordered his ministers to come up with new budget cuts to ensure that France sticks to deficit-cutting targets.Skip to next paragraph
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All three leading credit rating agencies reaffirmed their triple-A assessment of France, and analysts said they could not identify a trigger for the market turmoil.
"There's nothing behind it, it's a market of malintentioned speculators trading on pure rumors," said Marc Touati, an economist at French trading firm Assya Compagnie Financiere.
After Societe Generale, France's second-biggest bank, saw its share price drop nearly 15 percent Wednesday, the bank asked the French market regulator, the AMF, to investigate the rumors that it was on the ropes because of its heavy exposure to debt from troubled eurozone economies.
Societe Generale CEO Frederic Oudea called the rumors "totally unfounded" and "irrational." Speaking on France-Info radio, he urged calm and insisted that the bank's fundamentals are sound.
Oudea said Societe Generale had already accounted for its exposure to Greece's debts in its second quarter earnings.
"S&P is not going to downgrade France any time soon. Nor are Moody's or Fitch," Gary Jenkins of Evolution Securities said. "Growth will be the key to the stability of the ratings for France, U.K and the U.S. over the next 12 months."
He said there will be extra attention to France's release of second-quarter GDP figures on Friday, and warned that France could suffer if it has to spend significant new money to bail out more struggling eurozone states.
France's growth prospects are considerably better than those of Italy and Spain's, but its economic expansion is slowing and it's failed for years to reduce a deficit that stood at 7.1 percent last year. No other eurozone economy with a triple-A rating has a higher debt than France's — around 85 percent of national income.
Adding to market worries, French presidential elections scheduled for the spring of 2012 may make it difficult for the government to implement further austerity measures at a time when the economy is slowing.
Elsewhere in Europe, Greece announced a rise in unemployment after a series of unpopular austerity measures aimed at dragging it out of debt that sparked troubles across the eurozone.
And Italy's finance minister, Giulio Tremonti, told lawmakers Thursday that tough and speedy measures are needed over the next two years to balance the budget in 2013. The market turbulence has seen Italy's borrowing costs in the markets spike up to uncomfortably high levels.