France loses top-notch credit rating

Fifteen of the eurozone’s 17 members were put on notice for a downgrade by Standard & Poor’s in December [AFP]

France’s finance minister has confirmed that the ratings agency Standard and Poor’s has warned the government of its intention to strip the country of its AAA credit rating.

Speaking on public television, Francois Baroin said the firm would bring its rating down one notch to AA , but insisted that it was the government, and not private agencies or the markets, that would decide on economic policy.

“I confirm that France has received, like most eurozone countries, a notification of a change of its rating,” Baroin
told France 2 television.

“It’s a downgrade, a one-notch change, it’s the same agency that downgraded the United States. It [the downgrade] means we must follow and amplify reforms. We must be bold. We must preserve employment,” he added.

“It’s not good news, but it’s not a catastrophe.”

Rivals pounce

Sarkozy’s political rivals pounded on him over the downgrade of the French economy fewer than 100 days ahead of a presidential election.

Francois Bayrou, presidential candidate from the centrist MoDem party, said the downgrade symbolised “extremely heavy years of failure and drifting”/

“All the optimistic and authoritative statements of recent months are thus cruelly contradicted by the facts,” he said.

Far-right candidate Marine Le Pen told AFP news agency the downgrade showed “the end of the myth of the protector president”.

Nouveau Centre presidential candidate Herve Morin said: “The moment of truth has now come and the government can no longer get away with sweeping the dust under the carpet until the presidential election.”

Socialist candidate Francois Hollande, Sarkozy’s main rival according to opinion polls, was notable by his absence from criticism of Sarkozy, saying he would hold a press conference on Saturday morning.

Global impact

Markets in Europe and the US plummeted earlier on Friday after a European Union official disclosed Standard & Poor’s decision. The agency’s downgrade will not impact Germany, Belgium, Luxembourg and the Netherlands.

France was, along with Germany, Luxembourg and the Netherlands, among the six eurozone nations with a AAA rating.

The official was unable to say what S&P had decided to do with the two others, Austria and Finland.

S&P warned last month that the credit ratings of 15 of the eurozone’s 17 member states were at risk of a downgrade due to the continent’s ongoing debt crisis.

Friday’s developments sent the euro currency spinning down to a 17-month low against the dollar.

France’s downgrade could have far-reaching implications, potentially complicating the ability of Europe’s bailout fund, the European Financial Stability Facilityr (EFSF), to provide support to struggling countries.

France is a major contributor to the EFSF.

Europe’s crisis sprang from worries that countries had taken on more debt during boom years than they could pay back once their economies slowed.