French call for UK rating downgrade sparks storm

Britain must be the first to suffer, says Central bank's Christian Noyer

Anglo-French relations hit a new low yesterday as the head of France's central bank made an extraordinary call for the UK to be stripped of its gold-plated sovereign credit rating.

Christian Noyer's attack follows President Nicolas Sarkozy's cold-shouldering of David Cameron at last week's Brussels summit, after the UK prime minister vetoed treaty changes to tackle the region's sovereign debt crisis.

Fears over the exposure of France's banks to Europe's strugglers has seen the nation's own triple-A rating come under threat from Standard & Poor's, but Mr Noyer said the UK should be first to suffer at the hands of the ratings agencies.

He told a French newspaper: "A downgrade doesn't strike me as justified based on economic fundamentals. Or if it is they should start by downgrading the UK, which has a bigger deficit, as much debt, weaker growth and where bank lending is collapsing."

Mr Noyer's cross-Channel swipe is the latest shot in a diplomatic row between the old enemies after George Osborne's recent claims that markets were ready to turn on France – triggering fury in Paris. But bond markets have given their own much different verdict in recent weeks with Britain's benchmark cost of borrowing at 2.1 per cent yesterday, well below France's 3.1 per cent.

A Government spokesman said: "We have put in place a credible plan for dealing with the deficit and the credibility of that plan can be seen in what's happened to bond yields in this country."

Mr Sarkozy, who faces elections next year, has sought to shore up France's public finances with tax hikes and spending cuts although he trails his Socialist rival heavily in the polls. But France's credit quality has come under scrutiny since mid-October when the ratings agency Moody's said its financial strength had been sapped by the eurozone crisis, prompting Sarkozy to unveil another €18.6bn (£15.6bn) in austerity measures to slash the country's deficit to 3 per cent of GDP by 2013.

Even this may not be enough to save France's AAA rating, with Mr Sarkozy appearing braced for the eventuality this week, telling Le Monde that the impact was "not insurmountable".

Major French banks such as BNP Paribas and Société Générale have written off billions on their exposure to Europe's bailout cripples and struggled to raise cash in money markets.

Jonathan Loynes, at Capital Economics, said: "The big difference between the two is that France is clearly much more exposed to the problems in the rest of Europe than the UK."

According to the Bank for International Settlements, France's banking system has more than twice the exposure of the UK to the eurozone strugglers at some 22 per cent of GDP, Mr Loynes added. He said: "France is tied to the European Central Bank but we have our own policy mechanism – we can print money but the French can't do that. That is why our bond yields are lower than France – France is seen by the markets as something between the core and the periphery in markets now."

* Last night, Fitch Ratings downgraded the viability ratings for eight of the world's biggest banks – Bank of America, Barclays, BNP Paribas, Credit Suisse, Deutsche Bank, Goldman Sachs Group, Morgan Stanley and Société Générale.

EU deal splits widen as two threaten to exit over tax

The pact to save the eurozone grew increasingly shaky yesterday after two more EU members – Hungary and the Czech Republic – threatened to pull out.

Although David Cameron was vilified by many in Europe for vetoing the Brussels proposals last week, the pact between the 26 EU nations that agreed is rapidly unravelling. Hungary and the Czech Republic, neither of which use the euro, said yesterday that the new fiscal rules were unacceptable if they were to take away their independent taxation rights.

Czech prime minister Petr Necas said: "We support the solutions which result in the stabilisation for the eurozone but we are convinced that tax harmonisation would not mean anything good for us."

Their concerns came just a day after Ireland suggested it may have a referendum on the reforms agreed at the summit. Across the EU, leaders are facing opposition calls to reject the pact.

Lloyds Bank Corporate Markets' Jeavon Lolay said: "It was always clear that the sort of integration being talked about last week would be extremely challenging. How much control are these countries really going to be happy to cede?"

Meanwhile, another raft of gloomy economic data highlighted the dangers eurozone members face. The Eurozone Composite Purchasing Managers Index continued to register contracting activity among companies.

Economists said the numbers still indicated recession looks inevitable.

Christine Lagarde, managing director of the International Monetary Fund, said the global outlook was "quite gloomy" and will require action by all countries to head off an escalating crisis that carries risks of a global depression. "The crisis is not only unfolding, but escalating," she said. "It is not a crisis that will be resolved by one group of countries taking action. It is going to be hopefully resolved by all countries, all regions, all categories of countries actually taking action."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Mortgage Administrator

£20000 - £25000 per annum: Recruitment Genius: We are a vibrant and establishe...

Recruitment Genius: Payments Advisor

£15000 - £20000 per annum: Recruitment Genius: An experienced Repayments Advis...

Recruitment Genius: Investment Analyst

£25000 - £30000 per annum: Recruitment Genius: This leading provider of financ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Are you looking to take your ...

Day In a Page

Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent
Markus Persson: If being that rich is so bad, why not just give it all away?

That's a bit rich

The billionaire inventor of computer game Minecraft says he is bored, lonely and isolated by his vast wealth. If it’s that bad, says Simon Kelner, why not just give it all away?
Euro 2016: Chris Coleman on course to end half a century of hurt for Wales

Coleman on course to end half a century of hurt for Wales

Wales last qualified for major tournament in 1958 but after several near misses the current crop can book place at Euro 2016 and end all the indifference
Rugby World Cup 2015: The tournament's forgotten XV

Forgotten XV of the rugby World Cup

Now the squads are out, Chris Hewett picks a side of stars who missed the cut
A groundbreaking study of 'Britain's Atlantis' long buried at the bottom of the North Sea could revolutionise how we see our prehistoric past

Britain's Atlantis

Scientific study beneath North Sea could revolutionise how we see the past
The Queen has 'done and said nothing that anybody will remember,' says Starkey

The Queen has 'done and said nothing that anybody will remember'

David Starkey's assessment
Oliver Sacks said his life has been 'an enormous privilege and adventure'

'An enormous privilege and adventure'

Oliver Sacks writing about his life
'Gibraltar is British, and it is going to stay British forever'

'Gibraltar is British, and it is going to stay British forever'

The Rock's Chief Minister hits back at Spanish government's 'lies'
Britain is still addicted to 'dirty coal'

Britain still addicted to 'dirty' coal

Biggest energy suppliers are more dependent on fossil fuel than a decade ago
Orthorexia nervosa: How becoming obsessed with healthy eating can lead to malnutrition

Orthorexia nervosa

How becoming obsessed with healthy eating can lead to malnutrition
Lady Chatterley is not obscene, says TV director

Lady Chatterley’s Lover

Director Jed Mercurio on why DH Lawrence's novel 'is not an obscene story'
Farmers in tropical forests are training ants to kill off bigger pests

Set a pest to catch a pest

Farmers in tropical forests are training ants to kill off bigger pests