By Daniel Bases
Nov 19, NEW YORK 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
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
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
"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
"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.