PARIS - President Nicolas Sarkozy is not ready to admit it, but France has begun to fear that it will be next in the markets' firing line as the debt crisis spreads from Greece and Italy.

The ratings agency Standard and Poor's gave Paris a jolt on Thursday, announcing "in error" it had downgraded France's credit worthiness. It withdrew the statement, but other signs of trouble are mounting.

The "spread" or gap between French and German 10-year bond yields has never been higher, as investors skip over France and invest in its safer neighbor, and the government's borrowing costs are rising.

France now pays 3.46 percent interest on its bonds, more than twice as much as Germany, although still around half as much as Italy does - for now.

At stake is France's coveted "AAA" credit rating, any downgrade would be a humiliation for Sarkozy six months before he is due to seek re-election, and a blow for European leaders in their battle to save the euro.

"After Greece and Italy, France?" worried Le Monde's Friday headline, over a stark graphic showing France's 1.7 trillion euro ($2.3 trillion) debt just short of Italy's 1.9 trillion and dwarfing Europe's trillion-euro bailout fund.

This week Sarkozy scrambled to promise a second round of austerity measures, but Brussels was quick to call them insufficient, markets were unimpressed and some believe the crisis is already here.

"Let's not have any illusions. On the markets French debt has already lost its AAA," said Jacques Attali, former head of the European Bank for Reconstruction and Development.

"When we see the state's borrowing costs over 10 years and the direction of the Franco-German spread, French debt is treated as AA," he said, judging the government's latest austerity program "obviously insufficient".

The French government is still officially hoping for 1 percent growth next year, but the European Commission is more pessimistic, predicting only 0.6 percent, which would make it tough to meet debt reduction targets.

"Concerning 2013, further measures will be needed in order that excessive deficit is corrected," the commission's Economic Affairs chief Olli Rehn warned on Thursday, after studying the French austerity plan.

In the run up to what promises to be a difficult re-election battle, it is hard to see what Sarkozy might be able to cut - and his budget minister, Valerie Pecresse - insists there will be no new austerity package.

Agence France-Presse

(China Daily 11/14/2011 page11)