Moody's strips France of triple-A rating; a notch lower

Mon Nov 19, 2012 6:05pm EST

The logo of credit rating agency Moody's Investor Services is seen outside the office in Paris October 24, 2011. REUTERS/Philippe Wojazer

The logo of credit rating agency Moody's Investor Services is seen outside the office in Paris October 24, 2011.

Credit: Reuters/Philippe Wojazer

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Nov 19, NEW YORK (Reuters) - Moody's Investors Service downgraded France's sovereign rating by one notch to Aa1 from Aaa, the agency said on Monday, citing the country's uncertain fiscal outlook as a result of "deteriorating economic prospects."

Moody's said it is maintaining a negative outlook on the country due to structural challenges and a "sustained loss of competitiveness" in the country.

Standard & Poor's has a AA-plus rating and negative outlook on France, which it downgraded by one notch in January from AAA. Fitch Ratings has France at AAA, also with a negative outlook.

The loss of Aaa rating from two agencies poses a problem for France, as investment funds often require their best assets to have a minimum of two top notch ratings in order to remain in their portfolios.

Secondly, borrowing costs could rise for France given it is now not considered as strong a credit risk as before, although the rating is still very high.

"I'm not surprised for two reasons. Rating agencies are trying to beat each other at downgrading everybody but secondly simply because France is paying the price for not engaging in reform," said Axel Merk, president of Merk Investments in Palo Alto, California

"The question is whether it is a wake-up call, or not, and I don't think so; the French are too proud. Some metrics in France have been deteriorating a tad but not enough for stubborn politicians to change course," Merk said.

The euro slid against the U.S. dollar, dropping from a near two-week high after the downgrade to trade off 0.27 percent to $1.2777.

"There is probably more downside until the kneejerk reaction is out of the way. But on the whole it seems likely that this more reflects an already existing reality than new information for the market," said Steven Englander, global head of G10 FX strategy at Citi.

(Additional reporting by David Gaffen in New York.; Editing by Will Dunham and Tim Dobbyn)

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Comments (4)
GeorgeBrown wrote:
Is this punishment for the French voters electing a socialist President and for not adopting punishing and pointless austerity measures? Those austerity measures that the British government have adopted have driven Britain into an even deeper recession. Why would France follow the same suicidal policies?

Question: who rates the rating agencies? Everyone has an agenda, what’s theirs?

Nov 19, 2012 6:16pm EST  --  Report as abuse
lucky12345 wrote:
The French are BROKE, they have no money or a way to dig themselves out of the hole they’ve dig! Wait several years and with no private industries guess what, no tax revenues or jobs…

Nov 19, 2012 7:20pm EST  --  Report as abuse
GaryMN wrote:
Socialism doesn’t work, the French President has the lowest popularity rating of any recent President, less than a year after his election.

Nov 19, 2012 7:25pm EST  --  Report as abuse
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