Friday, January 13, 2012

Ratings Agency Set to Downgrade France

January 13, 2012

In a major setback for euro rescue efforts, reports on Friday emerged that ratings agency Standard and Poor's was likely set to downgrade the credit ratings of France and other European Union nations. Following the news, the value of the euro fell sharply.

After making threats in December, ratings agency Standard & Poor's is now gearing up to downgrade the credit ratings of triple-A rated France and other euro-zone nations, media reports said Friday.

A government source told French TV that France would be downgraded, while another unnamed source said that Slovakia was next on the list. Germany, the euro zone's largest economy, along with the Netherlands, Belgium, and Luxembourg would be spared, according to unnamed European Union officials in Brussels.

S&P had already put 15 of the 17 euro-zone countries -- including its largest and best-rated economies Germany and France -- on credit watch negative. Amid the ongoing euro crisis, "systemic stresses" were mounting, the US-based ratings agency said at the time.

The euro-zone's current bail-out fund, the European Financial Stability Facility (EFSF), could also be at risk of a downgrade, S&P said then.

"The consequence (if France is downgraded) is that the EFSF cannot keep its triple-A rating," Jörg Krämer, chief economist at Germany's Commerzbank, told Reuters. "That may irritate markets in the short term but wouldn't be a big problem in a world where the US and Japan also don't have a triple-A rating anymore. Triple-A is a dying species."


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