Tuesday

27th Jun 2017

Ratings agency raises alarm on core EU economy

In a sign that the eurozone's ongoing debt crisis could infect its second biggest economy, US credit agency Moody's has indicated it might lower France’s triple-A rating.

"Elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications," it said on Monday (21 November) in a weekly update.

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  • Dark clouds may be gathering over Paris (Photo: Bas Lammers)

The interest rate on French government bonds has stayed relatively low this year, but went up over the course of last month amid turmoil in Greece and Italy.

At 3.7 percent last week, up from an average of 2.78 percent this year, it is still nowhere near the level at which other eurozone countries have been forced to seek a bail-out. But the difference compared to German bonds, deemed safest by investors, did breach 200 basis points last week, a record since the introduction of the euro.

The French tteasury was quick to downplay the recent hike in borrowing costs. "France's average financing rate for medium- and long-term debt remains low," it said in a statement.

Francois Baroin, French finance minister, added that the current interest rates in by France "correspond to financing conditions which are very favourable."

France announced a fresh round of austerity measures earlier this month in a bid to stem the contagion and has regularly made statements to reassure markets of the soundness of its economic plans. Baroin repeated on Monday "one more time, the untouchable objective of reducing the public deficits."

France is one of six eurozone countries – aside from Austria, Finland, Germany, Luxembourg, the Netherlands – with a top-level credit rating.

But it has come onto market radars due to slow economic growth and its banks' heavy exposure to Greece.

But ratings agencies' credibility was put under the spotlight earlier in November when Standard & Poor's mistakenly sent out a newsletter suggesting it had lowered France's credit rating.

Downgrading France's credit rating would have a series of knock-on effects. It is one of the biggest contributors to the eurzone's bail-out fund, the European Financial Stability Fund, so downgrading France would imply a downgrading of the fund.

IMF warns France on budget deficit targets

The International Monetary Fund has warned France that it will have to carry out more spending cuts to ensure it reaches its deficit reduction commitments amid lower-than-expected growth expectations. Meanwhile Cyprus' credit rating was downgraded Wednesday raising the possibility that it could be the fourth eurozone country to need a bailout.

Desperate eurozone chiefs look to IMF

With little interest materialising in the private sector to boost the eurozone's rescue fund, the region may ultimately be forced to turn to the IMF, eurozone finance ministers conceded on Tuesday.

US agency issues eurozone ultimatum

US ratings agency Standard & Poor's has warned it might lower the grade of all six triple-A euro countries if the upcoming EU summit does not deliver.

EU approves rescue of Italian banks

The European Commission gave the green light to a €17-billion plan by the Italian government to save Banca Popolare di Vicenza and Veneto Banca.

Focus

EU and China move to fill US void

At a summit in Brussels, EU and Chinese leaders will attempt to deepen ties on trade and climate as US president Trump plans to pull out of the Paris climate deal.

Italy reaches EU deal on failing bank

After months of negotiations, the European Commission and Italy agreed on the terms of rescue for Monte dei Paschi di Siena bank, including job cuts, salary caps and private sector involvement in the bailout.

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