France defends credit-rating following Moody’s warning

22 Nov

France have been brought into the firing line this week as ratings agency Moody’s have given a warning it may change its ‘stable outlook’ on its credit rating to ‘negative’. This would mean it would be downgraded from its current ‘triple A’ status.

In response, French finance minister Francois Baroin said their current rates “correspond to financing conditions that are very favorable.” France aim to do everything in their power to not get downgraded.

In Moody’s weekly credit outlook note, Alexander Kockerbeck outlined the firms reasoning behind its recent warning:
“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.”

France’s 10-year-bonds rose to 3.7 per cent last week. Whilst this doesn’t come near to the levels paid by Italy and Spain, the difference between French bonds and German Bunds reached a euro record high.

France are paying nearly twice as much as Germany for its long-term funding. Rising borrowing costs are what pushed countries such as Ireland and Portugal to seek bailouts.

Christophe Nijdam, a bank analyst at Alphavalue in Paris, thinks France is the weakest of the triple A’s. He said: “In my opinion, the only thing that can stop all of this lies in Germany.”

Another of Moody’s fears is weaker growth prospects in France. However, the French government remain confident they have 6 billion euros to fall back on, if they face lower growth next year.

Christophe Nijdam, a bank analyst at Alphavalue in Paris, thinks France is the weakest of the triple A’s. He said:

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