France 'to lose AAA credit rating'

 

The eurozone was braced for more pain today amid reports that France is set to be stripped of its gold-plated AAA credit rating.

Credit rating agency Standard & Poor's (S&P) is widely expected to downgrade the eurozone's second biggest economy this evening in a move likely to push up the country's borrowing costs, according to unconfirmed reports.

The move would be significant because France is partly responsible for underwriting the eurozone bailout fund, which is at the heart of efforts to ease fears of a eurozone collapse.

Austria is also expected to be downgraded, which would leave just four of the 17 nations in the eurozone with the top-notch rating.

S&P, which announced in December that it had placed all the eurozone countries under review, is due to leave the AAA ratings of Germany, the Netherlands, Finland and Luxembourg untouched.

World markets fell amid the reports. The FTSE 100 Index in London was down more than 1% at one point, while Germany's Dax, France's Cac-40 and the US's Dow Jones Industrial Average were all in negative territory. The euro declined against most currencies, including the pound.

Reports of a breakdown in talks between Greece and its banks to restructure its debts fuelled fears of a default and also drove markets lower.

Credit ratings are a measure of how risky it is to lend to a country. A downgrade can force countries to pay higher interest rates, putting their finances under further strain.

Debt-ridden Spain and Italy are also in danger of suffering further downgrades, according to reports.

Losing its AAA rating would be an embarrassment for French President Nicolas Sarkozy, who is bidding for re-election later this year, and would hinder his efforts to steer the eurozone through the current crisis.

France's Bank chief Christian Noyer recently reacted to suggestions that the country could lose its AAA rating by saying that the UK should be downgraded before France.

He said: "They should start by downgrading the United Kingdom, which has higher deficits, as much debt, more inflation, and less growth than we do, and whose credit is collapsing."

But short-term predictions for the French economy are bleak. Its statistics agency Insee recently forecast that the economy would contract 0.2% in the fourth quarter and 0.1% in the first quarter of 2012 before returning to weak growth in the second quarter.

In August, S&P stripped America of its cherished Triple-A credit rating for the first time in its history because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilise the country's debt situation.

The UK has so far clung on to its top rating but a recent report by rating agency Moody's said the eurozone debt crisis had increased the risk of a downgrade.

Richard Driver, analyst for Caxton FX, said: "We all knew S&P was going to get its axe out but it has come a little sooner than expected.

"It sounds like Germany's AAA rating will be left alone, which is a relief, but this French downgrade is a major development if it's confirmed - Sarkozy will be furious.

"The big question is by how many notches France's rating is to be cut, one is manageable but two will really test the euro's resolve."

PA

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
election 2015The 10 best quotes of the campaign
News
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
News
people
Voices
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'