Standard & Poor May Put France On ‘Negative’ Outlook

It was reported on Monday that Credit rating agency Standard & Poor’s might change its outlook on France’s AAA rating to negative within days, raising fears that France can lose its position among the top rank of sovereign borrowers.

Credit rating agency Standard & Poor's could change its outlook on France's AAA rating to negative within days, adding to fears France may lose its position among the top rank of sovereign borrowers. Photo: World Economic Forum/Flickr

Standard & Poor’s (S&P) is a U.S.-based financial services company. It is a division of The McGraw-Hill Companies that publishes financial research and analysis on stocks and bonds.

The company is one of the Big Three credit-rating agencies, which also include Moody’s Investor Service and Fitch Ratings.

Standard & Poor’s refused to comment on the announcement, made by anonymous sources. If it’s true it can provide the risk of a downgrade has risen after concerning about the impact on French public finances of sluggish growth and the costs of the euro zone crisis.

Economic and financial daily paper La Tribune revealed that S&P had planned to make an announcement on France on Friday but put it off for some reasons.

“It could happen within a week, perhaps 10 days,” La Tribune quoted a diplomatic source speaking about possible change to the outlook.

French Finance Minister, Francois Baroin, said the focus should not be put just on France and that while the euro zone crisis was serious, Paris was “clear-sighted” on it.

He also spoke about third round of budget cuts, called for by the Organization for Economic Co-operation and Development, which said e an expected recession could pull French growth far below government aims next year.

“Everyone is concerned, not just France. It’s all the euro zone countries,” Baroin said in an interview. “France is not an island or economically cut off from the world. It depends on different parts of the euro zone for a large part of its economic activity and that’s why we are, to a large extent, clear-sighted on the crisis.”

He said that the growth of 1 percent allowed for elbow room in the budget. “However the economy evolves in the weeks ahead, we are maintaining our forecasts,” said Baroin.

President Nicolas Sarkozy, who is to run re-election battle in April, intends to avoid going down in history letting France lose its triple-A status.

However, on November 10, Standard & Poor’s announced by mistake that it had cut France’s sovereign rating, making investors to get anxious over Europe’s debt crisis.

This announcement helped push the yield gap between French 10-year bonds and Bunds to a peak of around 190 basis points on November 11. The cost of insuring French and other euro zone states’ bonds against default has also risen to record highs this month on fears the debt crisis will spiral out of control.

In late October, Moody’s warned that it gave three months to consider whether it should be placed on negative watch the French note. Fitch Ratings had highlighted the “risks” weighing on the French AAA he nevertheless reaffirmed.

If France loses its triple A, the European Financial Stability Fund (EFSF) would consider that the countries borrowing capacity significantly reduced. The “strike force” of the EFSF would not be able to respond to attacks against the markets of Italy and against Spain.

“If the boss of the EFSF, Klaus Regling, announced Tuesday that the Eurogroup of leverage the fund will not reach 4 to 5, as expected, the European Central Bank remains the only credible option,” concludes the source diplomatic.

“The threat of degradation of France especially before the European Council on December 9 dudu, put massive pressure on Angela Merkel on the involvement of the ECB.” [Via Reuters and Zero Hedge]

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