Moody's warns France there's pressure on its Triple-A rating

18th October 2011, Comments 0 comments

Ratings agency Moody's warned France Monday that it may place a negative outlook on its cherished Aaa credit rating in the coming months as the government's financial strength "has weakened."

The annual credit report is a shot across the bows for the second largest economy in the eurozone and came as Germany dampened expectations that an upcoming EU summit will finally provide a solution to the eurozone debt crisis.

"The deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook of the government's Aaa debt rating," Moody's said in its report.

The debt agency said the French government "now has less room for manoeuvre in terms if stretching its balance sheet than it had in 2008," when the US sub-prime crisis spread worldwide and brought recession to Europe.

France's "continued commitment to implementing the necessary economic and fiscal reform measures" will be key if it wishes to retain its top credit rating, it added.

"Over the next three months, Moody's will monitor and assess the stable outlook in terms of the government's progress in implementing these measures," Moody's stressed.

If it changes the French credit rating from stable to negative following that assessment then that would signal a likely downgrade in future, something the French government is anxious to avoid as it would lift the cost of borrowing.

The French government's "financial strength has weakened, as it has for other euro area sovereigns, because the global financial and economic crisis has led to a deterioration in French government debt metrics -- which are now among the weakest of France's Aaa peers," Moody's said, piling on the pressure.

Meanwhile in Duesseldorf, German Finance Minister Wolfgang Schaeuble said that while EU leaders were set to "provide cover for uncertainty in financial markets", a permanent solution was unlikely to arise out of Sunday's summit.

He also warned that markets must rapidly stabilise if Europe is to avoid damage to its real economy.

© 2011 AFP

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