France has been warned by Moody’s today that it could lose its triple-A credit rating. Moody’s said it could change the country’s “stable” outlook on the rating to “negative” due to the weakening financial strength of the government.
French bonds are under pressure, with 10-year notes being the fourth-worst performers this quarter.
France’s finance minister Francois Baroin said the government would do “everything in our power not to be downgraded”.
Moody’s said the global financial and economic crisis had led to a “deterioration” in French government debt, which was now “among the weakest” of countries with the top AAA rating.
It added that the French government “now has less room for manoeuvre”, but needed to show its “continued commitment to implementing the necessary economic and fiscal reform measures”.
Moody’s also warned that France’s budget may be stretched if the costs for helping to bail out indebted fellow eurozone nations and banks exposed to the debt crisis proved too much.
Part of the plan to beef up the European rescue fund, known as the European Financial Stability Facility, will be to guarantee portions of the debt owed by the weaker eurozone countries. This could threaten France’s credit rating. Offering insurance increases France’s contingent liability and that puts pressure on its rating.