Moody’s downgrades top French banks

Moody's ratings agency downgraded two top French banks in a new lurch for the eurozone crisis on Wednesday which Polish Finance Minister Jacek Rostowski warned could destroy the European Union.

Moody's downgrades top French banks
Mohamed Yahya

“Europe is in danger,” Rostowski, whose country holds the rotating EU presidency, told the European Parliament in Strasbourg ahead of emergency talks between leaders from Germany, France and debt-hit Greece. 

“If the eurozone breaks up, the European Union will not be able to survive, with all the consequences that one can imagine.”

Moody’s cut the rating for Credit Agricole bank, one of the biggest in Europe, from Aa1 to Aa2 and Societe Generale’s from Aa2 to Aa3 because of fears over their exposure to Greek sovereign debt. It left French banking major BNP Paribas on negative watch.

Despite the downgrade, shares in Credit Agricole rose by 2.13 percent in early trading on Wednesday, while shares in Societe Generale and in BNP Paribas fell by about three percent.

Shares in all three banks have plummeted in recent weeks amid turmoil over the eurozone debt crisis.

Moody’s warned in June that it was looking at French banks with a view to possible downgrade because of their exposure to the Greek financial crisis and the markets had largely anticipated the downgrade.

US President Barack Obama callerd on Tuesday for greater efforts by the EU to contain its crisis.

German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou are to discuss the Greek emergency at a teleconference scheduled for 5pm on Wednesday.

The teleconference was decided in view of informal talks between EU finance ministers and central bankers in Wroclaw on Friday and Saturday.

Merkel fought on Tuesday to soothe alarm on markets over Greece, saying everything would be done to avoid an “uncontrolled insolvency” and stressing that the eurozone would remain intact.

Commerzbank analysts commented: “The question of whether or not Greece will default is pretty much solved for the financial markets though. From the point of view of the markets a short-term default of Grece is more or less unavoidable.

“As a result, the forex market is more interested in the consequences of a default and as a result above all the question whether there is a risk of contagion effects for other countries.”

Merkel’s comments followed a stern warning from Obama that the global economy was unlikely to recover until the eurozone debt crisis was contained.

The US president added that it would be a “significant topic” for the next G20 meeting in France.

While Washington was “deeply engaged” with EU countries in tackling the crisis, ultimately it was up to Europe to solve it, he said.

“Greece is obviously the biggest immediate problem. And they’re taking some steps to slow the crisis but not solve the crisis,” Obama said.

“The bigger problem is what happens in Spain and Italy if the markets keep making a run at those very big countries,” he said.

US Treasury Secretary Timothy Geithner is to attend exceptionally Friday’s meeting of EU finance ministers and central bankers.

The emerging economies of Brazil, Russia, India, China and South Africa, which constitute the BRICS group, are to discuss possible aid to Europe to ease the crisis, Brazilian Finance Minister Guido Mantega said.

He and his counterparts are to discuss the issue in Washington on September 22nd. They will be in the US capital next week for the annual meetings of the International Monetary Fund and World Bank.

Many analysts are concerned that Italy could be the next eurozone domino to fall, with enormous debt which stands at 120 percent of gross domestic product.

Italian Finance Minister Giulio Tremonti met the head of China’s biggest sovereign wealth fund CIC last week, but officials denied he had asked Beijing to step in and purchase its bonds.

Battling to prevent a debt crisis that has already claimed Greece, Portugal and Ireland, Silvio Berlusconi’s government hopes deputies will on Wednesday pass an austerity package to balance the books by 2013.

In Greece, authorities braced for a new round of strikes to protest against new civil service pay and job cuts, as well as a surprise property tax translating into hundreds of euros per person on average.

EU officials have warned repeatedly that Athens will not receive the next slice of aid, worth €8 billion, unless it can persuade EU and IMF auditors, about to resume work, that it can overcome its deficit crisis.

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France unveils big-spending budget to tackle Covid-shock and pledges no new taxes

France launched a free-spending budget plan on Monday, saying a fresh spike in new Covid-19 cases justified its unprecedented loosening of the purse strings.

France unveils big-spending budget to tackle Covid-shock and pledges no new taxes
French finance minister Bruno Le Maire. Photo: AFP

After €460 billion of emergency spending this year to save the economy from the virus fallout, the government built its 2021 budget plan around a €100-billion “recovery plan”, first announced this month and partly funded by EU money.

The budget came after France's health services on Saturday reported 14,412 new virus cases over the previous 24 hours – only slightly lower than the record 16,000 registered on both Thursday and Friday.

READ ALSO IN NUMBERS Covid-19 cases, hospitalisations and deaths in France


The fresh spike threatens to overwhelm hospitals, health officials warned, while the government imposed fresh curbs to limit the spread of the virus, including on restaurants, bars and sports facilities.

“There is no reason to give up the idea of a recovery just because the health difficulties have re-emerged,” Finance Minister Bruno Le Maire told a news conference.

The spending boost is to help the French economy to rebound strongly next year, by eight percent according to the budget, after crashing by an expected 10 percent this year, Le Maire said.

“We are implementing this recovery fund so it can be used up quickly and have the greatest possible impact on growth,” he said.

But the growth forecast immediately drew criticism from France's high council for public finance, a state body charged with making sure that government budgetary assumptions are realistic.

The growth target was “pro-active”, given the “great uncertainties” weighing on the economic outlook because of the coronavirus, the council said.

It also called on the government to be mindful of public debt which has ballooned since the start of the crisis.

France's annual deficit is estimated at 10.2 percent of GDP this year, and is to come in at 6.7 percent in 2021, the government said.

This compares with a permitted ceiling of three percent for eurozone countries, which the EU has however lifted temporarily as governments grapple with the crisis.

The government has promised that it will not raise taxes to pay for the recovery.