• France's news in English

France's top credit rating at risk: Moody's

AFP · 21 Nov 2011, 15:09

Published: 21 Nov 2011 15:09 GMT+01:00

Facebook Twitter Google+ reddit

An increase in French government borrowing costs, slowing growth and the eurozone debt crisis threatens the country's top credit rating, Moody's ratings agency warned on Monday, adding to market jitters.

France is fighting desperately to retain its triple A credit status and has slashed spending and tightened up on tax revenues in an effort to stabilise its strained public finances, but the markets are not convinced.

"Last week, the difference in yield between French and German 10-year government bonds breached 200 basis points, a euro-era record amid increased economic and financial market uncertainty in the region," Moody's Investors Service said.

"Elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications," it said in a website statement.

Even though the spread between German and French borrowing costs has since narrowed slightly, France still pays "nearly twice as much as Germany for long-term funding.

"With the government's forecast for real (gross domestic product) growth of a mere 1.0 percent in 2012, a higher interest burden will make achieving targeted fiscal deficit reduction more difficult," it said.

The agency, one of the top three credit ratings groups, said "the domestic and external economic growth outlook presents significant downside risks.

"The French social model cannot be financed if the French economy's potential is not preserved," it said, adding that managing the eurozone debt crisis only makes the government's task harder.

The crisis "will influence the value and credit quality of sovereign assets on French banks' balance sheets and affect their funding costs and capacity to lend and bolster the economy," it said.

At the same time, Moody's said that despite the deterioration in the debt profile and the potential for increased costs, the rating level itself appeared safe for the moment.

The problems facing France were highlighted again on Monday as the financial markets faced fresh turmoil, finding no support in a right-wing government winning power in Spain and fearful that efforts to reach a bipartisan deal to tame the massive US debt were about to fail.

If the Washington talks do fail, as most feel is now likely, then the US debt problems would take centre stage, compounding the eurozone crisis.

Analysts in Paris said Moody's warning was hardly surprising, highlighting the difficult situation France and the eurozone faces as the crisis saps confidence and encourages investors to seek out safety at all costs.

Moody's statement highlights the fact "that France no longer deserves its triple A rating," said Laurent Geronomi at Swiss Life Gestion.

"The markets are going even further and wonder now when France is going to lose its triple A -- before or after the (May 2012 presidential elections," Geronomi added.

President Nicolas Sarkozy, lagging in the opinion polls, says he will do everything possible to ensure France keeps its top rating.

The stakes could not be higher.

"France is caught up in the contagion spiral," said Frederik Ducrozet, bond strategist at Credit Agricole.

Story continues below…

"The government can announce all the austerity measures it likes but the country is trapped now in a vicious circle," he said.

Edward Hugh, an independent economist based in Spain's Catalonia, warned that until Germany, Europe's paymaster and largest economy, puts up the money to back weaker eurozone states, "this is not going to stop."

Paris faces a real problem, Hugh said. "The French banking system has 400 billion euros' exposure to both public sector and private sector debt in Italy ... so if anything happens to Italy, France has gone."

Germany meanwhile insisted again on Monday that it was up to eurozone governments to put their financial house in order first before any pooling of debt in "eurobonds" could even be considered.

Berlin "sees the danger that such eurobonds could prevent us from attacking the problem at its roots," Chancellor Angela Merkel's spokesman said.

"None of the measures that are being discussed at the moment in public, which includes eurobonds, would bring a solution if they were immediately introduced."

Facebook Twitter Google+ reddit

Today's headlines
France sees biggest drop in jobless rate for 20 years
Photo: AFP

Good news at last. But it's unlikely to keep President François Hollande in his job.

Calais migrants given mixed reception in French towns
Photo: AFP

Some in France have shown solidarity with their new guests, while others have made it clear they are not welcome.

Lonely Planet says Bordeaux is world's best city to visit
The fantastic new Bordeaux wine museum. Photo: AFP

After The Local France, the Lonely Planet has followed suit by urging everyone to head to Bordeaux in 2017.

Jungle shacks set ablaze and torn down as camp razed
All photos: AFP

IN PICTURES: The razing of the Jungle has finally begun.

Frenchwoman finds WW1 grenade among her spuds
Photo: AFP

It could have been a very explosive family dinner.

Refugee crisis
What rights to a future in France for Calais migrants?
Photo: AFP

What does the future hold for the migrants of the Jungle? Can they work or claim social benefits or travel freely inside Europe?

Pampers nappies 'contain carcinogenics': French study
Photo: Robert Valencia/Flick

The substances in the nappies are meant to prevent skin irritation but are cancerous, the study concludes.

France to scrap special prison wings for dangerous jihadists
Photo: AFP

The experiment has been ditched.

Myth busting: Half of French adults are now overweight
A model at the Pulp Fiction fashion show in Paris that represents society's diverse spectrum . Photo: AFP

Hold on, aren't the French all meant to be finely toned specimens with not an ounce of fat on them?

France poised to send bulldozers into Calais Jungle
Photo: AFP

As hundreds of migrants leave, the bulldozers are set to tear down the sprawling Calais shanty town on Tuesday.

The annoying questions only a half French, half Brit can answer
Sponsored Article
Last chance to vote absentee in the US elections
Forget Brangelina's chateau - here are nine others you've got to see
The must-see French films of the millennium - Part One
How life for expats in France has changed over the years
Why Toulouse is THE place to be in France right now
Video: New homage to Paris shows the 'real side' of city
The 'most dangerous' animals you can find in France
Swap London fogs for Paris frogs: France woos the Brits
Anger after presenter kisses woman's breasts on live TV
Is France finally set for a cold winter this year?
IN PICS: The story of the 'ghost Metro stations' of Paris
How to make France's 'most-loved' dish: Magret de Canard
Welcome to the flipside: 'I'm not living the dream in France'
Do the French really still eat frogs' legs?
French 'delicacies' foreigners really find hard to stomach
French are the 'world's most pessimistic' about the future
Why the French should not be gloomy about the future
This is the most useful French lesson you will ever have. How to get angry
Why is there a giant clitoris in a field in southern France?
French pastry wars: Pain au chocolat versus chocolatine
Countdown: The ten dishes the French love the most
Expats or immigrants in France: Is there a difference?
How the French reinvented dozens of English words
jobs available