14 January 2012

Credit ratings and exchange rates

The big news in France this morning is that the country's credit rating has been downgraded from AAA to AA+ by the big international banks. That might not sound like a catastrophe, but it means that France will have to pay higher interest rates to borrow the money that the country needs to finance its huge budget deficits.

Looking out the back gate yesterday afternoon

Long-term, the downgraded credit rating will make prices and taxes here go up. Government services will probably be curtailed, to reduce deficits. The government will have to crack down and impose budgetary rigueur — austerity. That's what has already happened in Greece, Ireland, Portugal, Italy, and Spain. Now France. And also in the U.S., by the way, but the American economy and budget are so enormous compared to the individual European countries' that the U.S. is in a category by itself.

The afternoon of Friday the 13th no. 1 turned out mostly sunny

Pessimists will say that the euro zone is falling apart. But for most people in France, the effect of the credit downgrade on everyday life won't be felt for a while. For us expatriates whose pensions and assets are in, for example, U.S. dollars rather than euros, the effect is immediate. The euro is declining in value, which means that our dollars are worth more. My retirement income has increased in value in euros by more than 15% since I started collecting it last May. A 15% raise is nothing to sneeze at.

The house seen up and across several rows of grape vines

Meanwhile, inflation rates are going up in France. Everything costs more, especially oil. It's a vicious circle, of course, and there's no such thing as a free lunch. But I'd rather have a little more income and control my spending myself rather than living with the low value of the dollar as the factor that restricts my budget. It's partly psychological.

Callie is looking through the barbed wire fence to see if the
donkeys are in their pen. She's justifiably afraid of them.
Donkeys really detest dogs.

Long-term, I'd like the see the dollar-euro exchange rate stabilize at a reasonable level — say a dollar worth 80 to 85 eurocents, which would mean a euro worth about $1.20 U.S. That's what the exchange rate was six years ago — I've gone back and researched it.

Wild cyclamens blooming yesterday in the back yard

At one point in 2008, the euro was worth as much as $1.60, and that was worrisome to say the least. At that rate, I'd lose 20% of my current income in euros. These are the realities and uncertainties of life for an American expatriate retiree in France.


  1. An interesting post, Ken.

    I know it's a bit simplistic but I really would like to know exactly what these 'credit ratings agencies' were doing before the financial crisis? They were giving banks which subsequntly failed, or needed enormous government bail outs, AAA ratings.

    When we first bought our apartment in France the GBP_£ was worth 1.60 Euros. When we sold and bought our present house it was just 1.09 and is currently worth about 1.20!

    Then I read about the wife of a Swiss banker making millions out of currency exchange, with allegedly some inside knowledge.

    It makes me wonder yet again about David Cameron'm mantra that "we are all in this together"!!!

    Happy that you are currently seeing a benefit from changes in exchange rates. Every little helps ...

  2. As we are preparing for a decision to buy a property in France, I cannot believe how much just a one cent per dollar drop or increase means to a lump sum of money.

    We are watching the rates daily and are looking for the best possible day to drop the hammer. 1.25 median exchange value would make us happy.

  3. Sorry - a couple of typos, but I think you can get my gist!!

  4. One of the uncertainties of life
    for an American retiree in the
    US which you don't have to be concerned about is the cost of
    healthcare. Seems to be at
    least stabilizing somewhat,

  5. i wouldn't mind having the dollar & euro be equal.....

  6. I agree, Ken, that's it's more comfortable to be able to get more money to start off with, and then be in control of your spending. I'm glad for you :))

    I imagine that the EURO vs Dollar rate changes of late will help the tourism in France from the U.S. It's a big deal to be paying 20¢ less per Euro when you're looking hotel prices and restaurant prices and all of that.

  7. Judy

    The govt. has already increased taxes on hotel rooms - what they considered de luxe hotels and on take-out food IIRC. So what some tourist gain in exchanges rates , they will give back as taxes during their stay .

  8. It seems that the better rates for those buying homes in France has slightly stirred the property market.
    My partner is an estate agent and been extremely active the past few weeks, of course on the down side, it is not so good for those selling up.

  9. I remember that $1.60 rate in 2008. It just happened to be the first time we spent three months in France. Can't we say 'bad timing'?

  10. The downgrading will probably mean that Australia's interest rates will reduce but so will our share prices.
    We now get AUS.080c to the Euro.
    Our first trip to France it was AUS0.52c
    Renting from American owners of apartments in France is also a bonus since we are basically at parity with the US$.


What's on your mind? Qu'avez-vous à me dire ?