(Repeats without changes) By Mike Dolan LONDON, Sept 16 (Reuters) - While France's credit rating downgrade on Friday generated politically charged headlines, the bigger surprise was Spain's upgrade which got far less attention. An even bigger story is euro credit convergence and the disappearance of the long-standing dichotomy between the region's core and its periphery. Germany may be clinging to its prized AAA sovereign credit rating - which could soon be in jeopardy given the country's planned fiscal boost and debt spree - but euro zone sovereign credit ratings' weighted average appears to be gravitating to a high single-A. GDP-weighting flatters that average a bit because Germany accounts for almost a quarter of the bloc's economic output, but there's little doubt the other big euro nations are closing in on single-A - roughly where credit default swaps currently price the effective U.S. sovereign rating. That's a far cry from the reality just before the global banking crash and subsequent euro debt crisis 18 years ago, when Germany, France, Spain and five other euro sovereigns commanded AAAs. But the single-A average mirrors the deterioration in public credit ratings around the world. If the final remaining top-rated European countries eventually start to slip towards that new centre of gravity - as now seems likely given that the long-standing German debt brake has been lifted and defence spending prioritised - cheaper joint borrowing at a rating of AA or above may start to look much more attractive, even for the sceptics. GAIN IN SPAIN Germany, the Netherlands, Ireland and Luxembourg are now the only countries that still hold at least one AAA from the three main credit firms. The other nations have suffered in recent years. France, now the euro zone's biggest government bond market at more than 3 trillion euros, had its rating cut by Fitch last week to A-plus. The other big rating firms are likely to follow suit as the country's political struggle to rein in budget deficits rumbles on. By contrast, Spain, now the fourth-biggest euro sovereign bond market with roughly 1.8 trillion euros outstanding, just saw S&P Global lift its rating to A-plus. The country has been enjoying booming annual growth rates close to 3%, more than twice the euro zone average. Consequently, the denominator in Spain's debt-to-GDP ratio is doing the heavy lifting in reducing the country's overall leverage. Portugal was also recently upgraded to single-A by Fitch. Then there is Italy - the bloc's second-biggest bond market - which is also on the cusp with its BBB-plus mark from S&P. The enormous divide in credit quality - so clear during the euro crisis and Greek default saga more than a decade ago - no longer seems that big. SINGLE-A NORM The headlines continue to scream about the "crisis" in France, and the inability to form a political consensus in Paris to tackle ballooning public budgets clearly is a problem for a country with debt north of 114% of GDP. And yet "crisis" seems extreme for an economy with a current account in balance, a savings rate near 20% and low inflation. "France's problem is primarily political, not financial. France is not a bankrupt state likely to drag down its neighbours," wrote Michaël Nizard, Head of Multi-Asset at Edmond de Rothschild Asset Management. And markets seem to agree. There was little reaction to last week's downgrade, largely because CDS markets were already effectively priced for an A-plus rating anyhow. More importantly, French gloom is being offset by positivity about the rest of the single currency zone, with CDS pricing for Italy back at single-A and Spain as high as AA. Italian debt's 10-year nominal premium over French debt has all but disappeared, and Spain has had lower borrowing costs than France for almost a year. Spain's risk premium over Germany is also the lowest in almost 17 years, while Italy's is at a 16-year low. So no matter how you characterise the French story, this is not another euro zone debt blowup in the making. According to ECB data, the average 10-year yield premium on all euro government debt over just its AAA segment is only 47 basis points, down almost 30 basis points from the peaks of 2022 and even 20 bps tighter than 10 years ago. If single-A is now the benchmark and "core and periphery" credit divides are a thing of the past, then the drive towards cheaper joint borrowing may get fresh legs. The opinions expressed here are those of the author, a columnist for Reuters -- Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. Follow ROI on LinkedIn. Plus, sign up for my weekday newsletter, Morning Bid U.S. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Euro zone government default probabilities from CDS market https://tmsnrt.rs/41T7EC8 Spanish debt risk premia tumble https://tmsnrt.rs/4gqcHzR Spanish GDP growth outstripping euro peers https://tmsnrt.rs/4mntRzJ Italian debt risk premia tumble https://tmsnrt.rs/3Iptsi6 Euro zone countries debt-to-GDP ratios https://tmsnrt.rs/3VisM0Y Euro zone inflation and ECB interest rates https://reut.rs/46jXV9h ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (By Mike Dolan; Editing by Edmund Klamann) ((mailto:mike.dolan@thomsonreuters.com; +44 207 542 8488; Reuters Messaging: rm://mike.dolan.reuters.com@thomsonreuters.net/ @)) Keywords: GLOBAL EURO/ (REPEAT, COLUMN)
