France downgraded by US ratings firm

30th November 2011, Comments 0 comments

The small US ratings agency Egan Jones sliced France's debt grade a notch Wednesday, warning that Paris's financial picture could worsen sharply if forced to bail out French banks.

The agency cut France's sovereign rating to A with a negative watch, a step lower than the previous AA-, and sharply lower than the triple-A rating the major agencies give the country.

The country's fiscal situation was in a "disastrous trend, and the worst has yet to come," it said.

It pointed out that France's debt has jumped 21 percent in the past two years, while the economy has shrunk slightly, pushing the key measure of debt to GDP to a high 100 percent in June -- and on a trajectory for 117 percent in mid-2013.

"As the EU growth slows, and France's unemployment rises, budget pressures will rise," it said.

"An item which is hard to quantify but is a growing concern is the health of France's banks... Given France's propensity for supporting its banks, France might soon be confronting a substantial additional liability."

"Watch for a significant support program to be announced over the next couple of weeks," it added.

The downgrade came after weeks of rumors that France faced a ratings cut by one of the ratings giants -- Standard & Poor's, Moody's, or Fitch.

Though little-known and having less overall impact on markets for sovereign debt, Egan Jones -- a recognized rater by the US Securities and Exchange Commission -- has been ahead of the others in its ratings actions during the recent economic stresses.

It cut its US rating by one step to AA+ from AAA on July 18, three weeks before S&P made the same move.

The firm's France rating was already lower than S&P's and Moodys, both of which still maintain their highest AAA grade for the country.

© 2011 AFP

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