PARIS/BERLIN The German and French governments have both come to accept that the era when leading euro zone countries enjoyed the very best sovereign debt ratings is nearing an end, but a downgrade could shake Paris far harder than it does Berlin.
Markets have been bracing for a cut in the triple-A rating of France and possibly other top-rated euro zone members since Standard & Poor's warned in early December of a mass downgrade due to concerns about the bloc's two-year old debt crisis.
Such a move in theory makes it more expensive for countries to borrow, ruling out buying by certain types of investors as well.
If S&P were to follow through in the coming weeks and slash euro zone ratings across the board, economists say the financial and political backlash would be tolerable, as it has been for the United States since the rating agency controversially cut its debt last August.
But if France suffers a downgrade before Germany, as another rating agency Fitch has suggested, the level playing field that has existed between Europe's two biggest economies could be disrupted.
"There is a question about the balance of power if we see France downgraded first," said Mark Wall, an economist at Deutsche Bank in London.
"If we move to a world in which France is not triple-A, will Germans see themselves as carrying the financial bags for the rest of Europe? There may be a political impact at the national level."
The impact in France, where President Nicolas Sarkozy faces an uphill struggle to win a second term in a two-round April-May election, would certainly be greater if Paris gets hit first.
France is seen as the most vulnerable of the six triple-A euro zone states because of its debt and deficit levels, and worries about its ability to meet its own targets for cutting them.
Sarkozy carried out a public relations turnaround in December, claiming that losing the AAA would not be a disaster for France, having earlier vowed to defend the country's top-tier badge to the end.
Yet a possible one-notch, or even two-notch cut, could be devastating to the image he is pushing of himself as the person best placed to manage the deepening euro zone debt crisis and pull France's anaemic economy back on track as he heads into the final months of a campaign trailing Socialist rival Francois Hollande in the polls.
France's decline as a global economic power has become a major theme of the April 22 election and Sarkozy is hoping that his euro zone firefighting alongside Germany's Angela Merkel will win him plaudits with voters.
But a downgrade by S&P, Moody's or Fitch, which are all scrutinising France, could fuel doubts about whether he can fix France's problems, after his 2007 campaign pledge to bring down rampant unemployment was derailed by the 2008-09 financial crisis.
"It's easier if everyone gets downgraded at once rather than just France," said Jacques Cailloux, an economist at RBS in London.
"If you still have triple-A countries in Europe it's easy for investors to justify buying those assets instead of others. That would be more difficult for France, politically and financially."
END OF ERA
In Berlin, officials seem relaxed about the prospect of a cut. As the euro zone's biggest economy and top safe-haven, Germany may actually see its borrowing costs fall in the event of an across-the-board downgrade -- as they did in the United States following the S&P cut last year.
One senior German official told Reuters that it was time for Europe to accept that it faces the "end of the triple-A era."
And top government officials have signalled in private for weeks that they are prepared to accept a cut in the triple-A rating of the euro zone's rescue fund -- the European Financial Stability Facility (EFSF) -- if France and other countries are cut.
In France, the big question is whether a downgrade would have an impact on policy after the election.
Sarkozy's conservative government rushed through two budget cutting packages in 2011 as it grappled to keep rating agencies at bay.
But most economists say a further austerity push is all but inevitable this year if France is to stick to promises to cut its public deficit to 4.5 percent of gross domestic product (GDP) in 2012 so that it can respect an EU-imposed limit of 3.0 percent in 2013.
In a televised New Year's Eve address, Sarkozy vowed there would not be another savings drive during his current term.
"Neither financial markets nor ratings agencies will dictate France's policies," Sarkozy said in his speech.
Once the vote is out of the way, however, the victor may be forced into more fiscal rigour by a downgrade, French economist Jacques Delpla believes.
"If France finds itself with a double-A rating, there will be no choice. Even Hollande will be forced to consolidate."
(Written by Noah Barkin and Leigh Thomas. Editing by Jeremy Gaunt.)