France vows to keep triple-A rating, warns on growth

18th October 2011, Comments 0 comments

Finance Minister Francois Baroin said on Tuesday France will do everything in its power to maintain its triple-A rating, while warning that it could reduce its economic growth forecast for next year.

The vow on France's rating came after ratings agency Moody's warned it may place the country on negative outlook saying France's financial strength had weakened.

"We will be there to preserve our triple-A rating... We will do everything in our power not to be downgraded," Baroin told France 2 television after Moody's issued the warning.

Baroin said that France had room to manoeuvre to protect its top credit rating which allows it to borrow at favourable rates.

"We have room to manoeuvre... We will take all the measures so there is no concern," he added.

"Everything has been put in place over the past three years to avert a downgrade," he said, pointing to "structural reforms" such as raising the retirement age and public-sector cuts.

But Baroin also warned that France may have to lower its growth expectation for 2012, saying the forecast of 1.75 percent was "probably too high" and that "there is a risk" growth will be below 1.5 percent.

The current 2012 growth forecast is "probably too high in relation to economic activity. We are not revising it today, we will present the budget on this basis.... Between 1.75 and 1.5 percent, there will be no need for modifications."

Asked if it were possible that French growth would be lower than 1.5 percent next year, Baroin said "there is a risk" because there is a "risk of a global slowdown. It is very fast, it could be severe."

Moody's fired a warning shot at France on Monday saying it would determine over the coming three months whether Europe's second-largest economy merited its stable status given its weakening economy.

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

If that is the case then France would follow in the unwilling footsteps of the United States. In August, Standard & Poor's dealt the US its first-ever ratings downgrade.

France is rated triple-A by all three leading credit rating agencies, Moody's, Standard & Poor's and Fitch Ratings.

Moody's said France'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."

© 2011 AFP

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