Strained at the very core

France: C'est vrai. France is at risk of following the United States and losing its triple-A credit rating. That reflects a long-term failure to address the country's finances. The markets rightly see the damaging side effects. A downgrade would complicate the triple-A rating of Europe's bailout fund. For the sake of itself and the euro zone, France needs to fight. At 85 per cent of the GDP, the French debt burden, is the highest among AAA-rated countries. It had a huge budget deficit (seven percent of GDP) in 2010. There is also the extra burden limping in from the euro zone. Contributing to the second Greek bailout may add about euro 15 billion to public debt. With Spain and Italy also in difficulty, the risk is that French support for struggling euro zone neighbours has to climb much higher. There may also be a need to bolster French banks if they are hurt by sovereign debt restructuring.

Paris should be adding unpopular measures to its already stern budget plan. The current fiscal plan looks bold on paper, aiming to cut the central state budget deficit by euro 56.5 billion to euro 92.3 billion this year. But, during January to June, the deficit was barely changed. The hope is that this is just a question of the timing of receipts and costs. Still, the targeted deficit of 5.7 per cent of GDP is still too high for a country that faces rising external burdens.

Going further would mean finally addressing the problem of France's expensive, multi-tiered system of local government. No president has yet had the will to do this. Another potentially productive step would be to remove VAT exemptions. This could raise as much as 3.3 per cent of GDP in additional tax revenue from higher duties on goods such as fuel, alcohol and tobacco, the International Monetary Fund says.

It sounds like an assault on all that France holds dear. And, that is how many voters may see it. The 2012 presidential election looms; Nicolas Sarkozy is seeking re-election. As in the United States and other euro zone countries, it may be the unwillingness to implement necessary but unpopular policies that condemns France to more debt and debt downgrade. The difference to the US debacle is that this would be bad news for the euro project, too.