By Matthieu Protard
PARIS, Dec 20 (Reuters) - The head of France’s AMF securities regulator said on Tuesday it would take a miracle for the country to keep its top-notch credit rating and warned of far-reaching effects for the euro zone’s second-largest economy should it lose it.
On Friday, credit ratings agency Fitch lowered the outlook on France’s triple-A sovereign rating to negative, joining Standard & Poor’s, which put France and 14 other euro zone countries under review at the start of the month.
Moody’s, the other major ratings agency, said in October it was reviewing its stable outlook on France’s AAA rating.
“Keeping it would need a miracle, but I want to believe it can happen,” Jean-Pierre Jouyet told a meeting with financial journalists.
President Nicolas Sarkozy, who faces a tough re-election fight in April and has vowed for months to do everything to protect France’s rating, has recently changed tack and prepared voters for its loss by saying that a downgrade would be surmountable.
“I find it quite regrettable that we are accepting with a certain fatalism the loss of the AAA and that, with a certain resignation, we accept the downgrade of our country,” said Jouyet, who is seen as close to France’s opposition Socialist party and is a friend of its presidential candidate, Francois Hollande.
While some investors have said the market has already discounted a downgrade to France’s rating, Jouyet said there was no room for complacency as the move would have wide repercussions.
“It wouldn’t be banal because there is an impact on interest rates, credit conditions and consumer spending power,” he said.
Ratings downgrades usually push up debt issuers’ borrowing costs, and some portfolio-based investors may dump downgraded debt automatically to preserve the credit standard of their products.
Fitch said on Tuesday that the AAA credit rating of the euro zone’s EFSF bailout fund largely depended on France and Germany retaining their top rating.
There was a slightly greater than 50 percent likelihood of France being downgraded within the next year or two, Fitch said.
“France is the most exposed of the ‘AAA’ euro member states to a further intensification of the eurozone sovereign debt crisis,” Fitch said. “It provides 158.5 billion euros of guarantees plus over-guarantees to the EFSF guarantee pool under the framework agreement.”
Economists have noted that the EFSF could be adapted to function without its AAA and in any case the activation of the permanent ESM bailout mechanism this year would reduce its importance.
Henri Guaino, a special adviser to President Nicolas Sarkozy, said the loss of France’s AAA rating would be “completely unjustified”.
“France does not present any default risk on its debt,” he told Les Echos newspaper in an interview.
With many economists saying that further austerity measures will be necessary in France, with the economy likely to slip into recession early next year, Jouyet urged the government to adopt a “socially acceptable” pace of austerity.
Referring to a spat last week between Britain and France over credit ratings, Jouyet said French officials had simply overreacted to reports of criticism by the British government of the euro zone’s efforts to tackle its debt crisis.