S&P's Freudian slip

I tend to believe that Standard & Poor’s withdrew yesterday a credit rating downgrade of France out of minor, rather than serious, technical errors.

The key assumptions and historical data that suggest downgrading the European country is sensible are in place. The question is when this should be done.

S&P and maybe other credit rating agencies (CRAs) if I remember correctly have fore-warned again and again that not only Greece, Spain, Portugal, Ireland, Ireland and Italy are under threat of a deep debt crisis, big economies like France will also be assigned a lower grade if it fails to resolve its fiscal deficit and reduce government and corporate debt levels within a certain period of time.

The CRAs should be analysing the data about the financial health of France on a daily basis. They should have pre-set some parameters in assessing the country’s portfolio. Signs of deterioration are there. The direction of rating the country downward is also fixed. The CRAs are just “waiting” for the threshold to be reached.

Like a patient whose temperature has broken the normal 37.8 degrees. Yesterday, a nurse turned on the heating too early and the slightly erroneous measurement read a temperature of 30 and triggered the bell. We can criticise the nurse for adding anxiety to those concerned about the patient. We can't reverse the trend that the patient is getting fragile and the 39 celsius will be reached soon and a major surgery warranted.

If not yesterday, when? May next week or next month. Even if next year won’t be too far from now.

The market has long questioned France’s ability to be a saviour. Just because it is stronger than the dying patients that it took up this role with neighbour Germany. S&P may be careless. But don’t jump to the bandwagon of blasting the CRA hastily. They might simply forget to round up a percentage point of a non-crucial figure and thus ring a false alarm that may become true soon.