France denies Dexia bailout will hurt state credit rating

5th October 2011, Comments 0 comments

French officials scrambled Wednesday to defend their plan to save struggling Franco-Belgian bank Dexia, insisting it is a one-off action and poses no threat to the state's own credit rating.

Dexia, which specialises in investing local government funds, is faced with restructuring, and two French government funds are preparing to step in to guarantee deposits and take over management of much of its activity.

Coming at a time when the markets fear that many other French lenders are overexposed to risky Greek, Spanish and Italian sovereign debt, the Dexia move has increased fears about the overall stability of France's financial sector.

So a string of officials took to the airwaves before markets opened to play down the fear, and to rebuff warnings from opposition Socialists that France's prized AAA credit rating could be put in danger by the bailout.

"I find these suggestions very excessive and, to tell the truth, pretty inaccurate. The states won't be guaranteeing more than they guaranteed a few years ago," central bank governor Christian Noyer said.

France and Belgium had previously stepped in to help out Dexia in 2008, when it found itself in difficulty over its exposure to US sub-prime debt.

"The Belgian and French states will put much less money into this operation than the British put into the Royal Bank of Scotland or Barclays," he added, referring to operations that did not damage London's credit rating.

Finance Minister Francois Baroin confirmed the Caisse de Depots, a state-run long-term investment fund, and the Banque Postale, the banking arm of the French post office, were readying an intervention.

"The board will announce its decision tomorrow," he said. "It's obviously the most serious option."

Baroin also played down the scale of the intervention, and added that such guarantees to financial institutions are not accounted for when calculating a government's public deficit.

European Affairs Minister Jean Leonetti denied that Dexia's crisis could be the first domino in a chain that would topple further French banks.

"Dexia has had problems from a long time. For the past 20 years there have been management problems. This is a very specific problem that has nothing to do with Greek debt," he said.


© 2011 AFP

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