France and funding the EFSF once AGAIN!

As repeatedly pointed out on this blog, over many months, there are insufficient AAA rated Euro Zone nations to allow much, if any, boosting of the EFSF, let alone the eventual ESM. Rather than repeat old links to postings again and again, try this new one to Acting Man, from which comes the following quote:

The problem we want to focus on here is however the danger posed by a possible downgrade of France's current 'AAA' credit rating. This rating is absolutely essential to support the EFSF. And yet, if France should now give large additional guarantees to the EFSF, the mere fact of issuing said guarantees could be sufficient grounds for the credit rating agencies to downgrade France's rating – which in turn would then make the guarantees worth much less. In fact, it is very much conceivable that following a downgrade of France, the EFSF itself could also lose its current AAA rating – and this would deal a devastating blow to the entire bailout project.

As it were, S&P has already warned several weeks ago that an enlargement of the EFSF would likely 'lead to rating action'. France's public debt to GDP ratio is  nearly at 86%, so it is clear that the country would be in the crosshairs of the rating agencies. The big surge in CDS spreads on France over recent months and the recent large jump in yields on the French government's bonds  represent a big warning sign, as quite often the rating agencies will simply validate the market's assessment with a lag.