France downgraded, trouble looming

It is an elemental misjudgement. Yes, there may be small countries where this applies. They can hope to export their way out of trouble, if they have a high enough trade gearing. They may be able to overcome the debt deflation shock if their debt levels are low enough. If not, they can go to the IMF for a package of reform cushioned by debt relief, devaluation, and cheap IMF bridging loans.None of this applies in southern Europe or to the quasi-EMU states in trouble in central Europe and the Balkans. If a region holding 300 million people tries to retrench at once, it causes a self-feeding downward slide for the whole system. That is exactly what we are seeing.

via France downgraded, trouble looming.