Sunday

5th Feb 2023

France launches inquiry after accidental downgrade

  • Paris. A credit downgrade would be a big political and economic blow (Photo: Anirudh Koul)

France has reacted with anger after a major ratings agency on Thursday (10 November) accidently suggested it had downgraded its credit rating status, temporarily putting the country in a situation it has been desperately fighting to avoid.

French finance minister Francois Baroin demanded an inquiry by both the European financial markets authority and national markets regulator AMF.

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Calling it a "quite shocking rumour without any basis", Baroin said the investigation should look into the "causes and consequences" of the error.

Standard & Poor's made the mistake on Thursday afternoon when it included an analysis of France in a downgrade section of its website.

"As a result of a technical error, a message was automatically disseminated today to some subscribers of S&P’s Global Credit Portal suggesting that France’s credit rating had been changed", it later said in a statement.

"This is not the case: the ratings on Republic of France remain 'AAA/A-1+' with a stable outlook and this incident is not related to any ratings surveillance activity. We are investigating the cause of the error."

The mistake came the same day the European Commission announced that France's economic growth targets were too optimistic and that further austerity cuts would be necessary.

The gloomy outlook was followed by a record high in France's borrowing cost when compared to benchmark Germany.

France has been fighting to maintain its prized credit status - with President Nicolas Sarkozy not only mindful of the economic consequences of a downgrade but also the political consequences ahead of next year's presidential election.

Last month, Moody's ratings agency said Frence's "financial strength has weakened" and that it was "among the weakest of its AAA peers". It said it would decide within three months whether to alter its outlook on the country.

Suffering from low growth and with banks heavily exposed to struggling Greece, France has emerged as a new target for market speculators.

The developments prompted Paris to announce a major austerity programme earlier week, worth some €19 billion in spending cuts and tax hikes. It is the second round of cost-cutting measures since August.

Some believe France is fighting the inevitable, however.

Economist Jacques Attali, advisor to former president Francois Mitterrand, told La Tribune newspaper on Thursday the difference in France's borrowing costs when compared to other top-rated states, such as Germany, meant the country has "de facto lost its triple-A."

Attali was later rebuked by budget minister Valerie Pecresse, but every negative statement contributes to the feverish atmosphere in financial circles.

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