Moody's strips France of triple-A rating; a notch lower

Tue Nov 20, 2012 4:40am IST

France's President Francois Hollande pays respect to the French flag as he attends a ceremony to commemorate the end of the World War One at the Arc de Triomphe in Paris, November 11, 2012. REUTERS/Bertrand Langlois/Pool

France's President Francois Hollande pays respect to the French flag as he attends a ceremony to commemorate the end of the World War One at the Arc de Triomphe in Paris, November 11, 2012.

Credit: Reuters/Bertrand Langlois/Pool

Nov 19, NEW YORK (Reuters) - Moody's Investors Service downgraded France's sovereign rating by one notch to Aa1 from Aaa, the agency said on Monday, citing the country's uncertain fiscal outlook as a result of "deteriorating economic prospects."

Moody's said it is maintaining a negative outlook on the country due to structural challenges and a "sustained loss of competitiveness" in the country.

Standard & Poor's has a AA-plus rating and negative outlook on France, which it downgraded by one notch in January from AAA. Fitch Ratings has France at AAA, also with a negative outlook.

The loss of Aaa rating from two agencies poses a problem for France, as investment funds often require their best assets to have a minimum of two top notch ratings in order to remain in their portfolios.

Secondly, borrowing costs could rise for France given it is now not considered as strong a credit risk as before, although the rating is still very high.

"I'm not surprised for two reasons. Rating agencies are trying to beat each other at downgrading everybody but secondly simply because France is paying the price for not engaging in reform," said Axel Merk, president of Merk Investments in Palo Alto, California

"The question is whether it is a wake-up call, or not, and I don't think so; the French are too proud. Some metrics in France have been deteriorating a tad but not enough for stubborn politicians to change course," Merk said.

The euro slid against the U.S. dollar, dropping from a near two-week high after the downgrade to trade off 0.27 percent to $1.2777.

"There is probably more downside until the kneejerk reaction is out of the way. But on the whole it seems likely that this more reflects an already existing reality than new information for the market," said Steven Englander, global head of G10 FX strategy at Citi. (Additional reporting by David Gaffen in New York.; Editing by Will Dunham and Tim Dobbyn)

FILED UNDER:
  • Most Popular
  • Most Shared

DEFENCE

REUTERS SHOWCASE

Power Theft

Power Theft

India to invest $4 billion to tackle power theft  Full Article 

Debt Funds

Debt Funds

India monitors foreign flows into debt funds, may tighten rules  Full Article 

Bulgari Back in India

Bulgari Back in India

CEO: we shouldn’t have left India so we’re back  Full Article 

 Hindu "Modi-fication"

Hindu "Modi-fication"

Fears grow about Hindu "Modi-fication" of education  Full Article 

Weak Credit

Weak Credit

Hard to hit tax revenue target, credit weak - Jaitley  Full Article 

China Rate Cut

China Rate Cut

China surprises with interest rate cut to spur growth  Full Article 

Gold Imports

Gold Imports

RBI cautious on response to gold import surge  Full Article 

Economic Corridor

Economic Corridor

China commits $45.6 billion for economic corridor with Pakistan  Full Article 

Overseas Funds

Overseas Funds

RBI says overseas borrowed funds can be parked with banks in India  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage