Fitch says France's AAA safe in 2012, Italy top concern

10th January 2012, Comments 0 comments

Ratings agency Fitch said Tuesday Italy is the most worrying of the embattled eurozone countries and could see its credit rating cut this month, while France's top triple-A rating is safe for 2012.

Speaking at a news conference, Fitch Managing Director David Riley also warned that an exit by Greece from the eurozone in 2012 was a possible option.

Riley said eurozone countries have to raise two trillion euros in 2012 with more than half of that accounted for by members of the single currency bloc currently most at risk of a downgrade by Fitch.

Italy, whose debt is nearly 120 percent of its annual economic output, is scheduled to borrow a colossal amount this year, Riley said adding that the situation was potentially explosive.

Investors are seeking returns of over 7 percent on long-term Italian debt, a level widely seen as unsustainable if Italy's economy continues to grow at a snail's pace.

Without an adequate European-wide financial firewall, risks of more contagion in the debt crisis would multiply, Riley said.

Italy, which currently holds an A+ rating but with a negative outlook, has a significant chance of being hit with a downgrade before January 31 when an ongoing Fitch review of Italy's economy is set to be finished, Riley said.

Fitch warned last month that six eurozone countries -- Spain, Italy, Belgium, Slovenia, Cyprus and Ireland -- were all at risk of downgrade.

Meanwhile in Paris, a Fitch spokeswoman said the agency did not foresee a downgrade for France in 2012 unless the country received significant economic shocks.

"Fitch maintains its position from December. In the absence of important shocks that could be linked to a strong worsening of the situation in the eurozone, Fitch does not foresee modifying its negative outlook (on the ratings) before 2013," a spokeswoman said.

Fitch on December 16 affirmed France's triple-A rating but revised its long-term outlook to "negative" from "stable" due to the "intensification of the eurozone crisis".

"The fact that Fitch does not plan to downgrade France's triple-A this year is good news. This means that, for the agency, the government is taking the country's debt problem seriously and is proposing measures that could eventually be effective," said Dov Adjed, a trader with Aurel BGC.

The French stock exchange welcomed the news, with the benchmark CAC 40 index up 2.53 percent at 1420 GMT to 3,206.81 points.

Ratings agencies Standard & Poor's and Moody's have warned that France is exposed to the sovereign debt crisis gripping Europe and have threatened to downgrade its hitherto perfect rating. S&P said it could even downgrade the country by two notches.

The French government is struggling to convince financial markets and ratings agencies that it should keep its top credit rating and has imposed two deficit-cutting packages aimed at saving a total of 72 billion euros ($92 billion) since August.

It has said it needs to save 100 billion euros to balance its budget by 2016 but President Nicolas Sarkozy, facing a tough re-election battle in April, has vowed no new austerity measures.

Despite predictions the French economy is headed into recession, the outlook on government finances appears to have improved since the start of the year.

Prime Minister Francois Fillon said on Monday that France will beat its deficit target for 2011, with the deficit 4.0 billion euros lower than expected and "most probably" lower than the goal of 5.7 percent of Gross Domestic Product.

And last week the French state raised nearly 8 billion euros in new long-term bonds in an auction that saw solid demand but Paris paying slightly higher interest rates.

France said in late December it will need to raise 178 billion euros in medium and long-term bonds in 2012, slightly less than last year.

-- Dow Jones Newswires contributed to this story --

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© 2012 AFP

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