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Standard and Poor's downgrades France by one notch to 'AA'

Associated Press     November 8, 2013
Standard & Poor's (S&P) has downgraded France's principal credit rating by one notch to 'AA' amid concerns that the country will struggle to get its public finances in shape and make the necessary reforms to make its economy more competitive.

The ratings agency on Friday said it believed unemployment that now hovers above 10 per cent would likely stay elevated until 2016, making any reforms politically difficult. In addition, it said France has little room to raise taxes further in order to plug budget holes.

No further downgrades are in the immediate offing as the agency says the ratings outlook is stable.

The markets barely reacted to the news, and the yield on the country's 10-year bond was up a bare 0.03 per centage point at 2.19 per cent - a historically low rate.

French Finance Minister Pierre Moscovici said he regretted S&P's decision but emphasised that France's credit rating remained among the highest in the European Union and the world.

"I deplore certain judgments that, I think, are inexact criticisms," Moscovici told France Info radio. "They underestimate the ability of France to transform itself, to right itself."

S&P was the first agency to strip France of its top AAA rating. The other two major ratings agencies, Moody's and Fitch, have since followed suit.

The Socialist government of Francois Hollande came to office in May 2012 following the first downgrade with promises to reverse France's economic decline. Since then, unemployment has risen and his approval ratings have plunged to the lowest levels of any modern French leader.

Although some reforms are in the works - including a major labour agreement and some adjustments to the pension system - many economists say the changes are coming too slowly and too incrementally to improve the situation.

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