France Slides Towards Debt Downgrade

By:  Bob Adelmann
11/21/2011
       
France Slides Towards Debt Downgrade

Moody’s rating service warned on Monday that France’s coveted triple-A credit rating is in jeopardy as a result of the country’s “elevated borrowing costs … amid a deteriorating growth outlook.” Senior credit officer Alexander Kockerbeck said “As we noted in recent publications, the deterioration in debt metrics and the potential for further liabilities to emerge are exerting pressure on France’s creditworthiness and the [current] stable outlook of the government’s Aaa debt rating.”

In May of this year Fitch Ratings confirmed France’s triple-A rating with a “stable” outlook but warned that “continued fiscal consolidation is needed to stabilize and then start to reduce public debt, which reached 81.7 percent of GDP as of [the end of] 2012.”

 

Moody’s rating service warned on Monday that France’s coveted triple-A credit rating is in jeopardy as a result of the country’s “elevated borrowing costs … amid a deteriorating growth outlook.” Senior credit officer Alexander Kockerbeck said “As we noted in recent publications, the deterioration in debt metrics and the potential for further liabilities to emerge are exerting pressure on France’s creditworthiness and the [current] stable outlook of the government’s Aaa debt rating.”

In May of this year Fitch Ratings confirmed France’s triple-A rating with a “stable” outlook but warned that “continued fiscal consolidation is needed to stabilize and then start to reduce public debt, which reached 81.7 percent of GDP as of [the end of] 2012.”

In August Fitch repeated that its rating for France remained triple-A but noted that the rise in the prices of credit default swaps (CDS) “may be a sign that the markets are concerned over the euro zone’s ability to prop up weaker countries in the EU.” Credit default swaps are often used as a form of insurance against the default of a debt issuer.

In October Moody’s Rating Service warned that it could cut its rating on France’s sovereign debt “if the situation deteriorated in the next three months.” Monday’s announcement by Moody’s confirmed that the situation has in fact deteriorated significantly, with interest rates on France’s 10-year notes rising to nearly two full percentage points above similar debt issued by Germany, which so far also sports a triple-A rating by the three credit rating services.

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