Euro Crisis: French Credit Rating Cut

(c) Sky News 2012

A second major credit ratings agency has stripped France of its 'triple-A' status in a move that risks stoking its borrowing costs and dragging it further into the eurozone debt crisis.

Moody's Investors Service announced it was cutting France's sovereign rating by one notch to Aa1 (SNP: ^AA1Y - news) from Aaa, citing the country's uncertain fiscal outlook as a result of "deteriorating economic prospects".

Moody's also said it was maintaining a negative outlook on France due to structural challenges and a "sustained loss of competitiveness" in the country. The downgrade follows that of Standard & Poor's in January.

The loss of the Aaa rating from two agencies poses a problem for France, as investment funds often require their best assets to have a minimum of two top-notch ratings in order to remain in their portfolios.

Moody's said it was becoming increasingly difficult to predict how resilient France would be to future euro-area shocks but analysts suggested the downgrade was not a consequence of new information from the market.

Because of that there was little movement in its 10-year debt yield, the cost to France of servicing its debts, rising only slightly on Tuesday morning (NasdaqGS: TUES - news) though the CAC 40 (Brussels: INCAC.BR - news) lost 0.6% on opening in Paris.

Pierre Moscovici, the French finance minister, blamed the downgrade on the policies of previous governments that had failed to restore the competitiveness of the nation's economy.

"French debt still remains among the most liquid and safest of the eurozone," he said.

"The French economy is large and diversified and the government has shown proof of its serious plan to implement structural reforms and restore public finances."

Mr Moscovici is due to join his euro area counterparts in Brussels to give tentative approval for the next tranche of loans to Greece.

However, the money is unlikely to be paid until December as talks continue on debt reduction and Greek efforts to keep to tough spending targets.

The head of the International Monetary Fund (IMF (Other OTC: IMFAF.PK - news) ) Christine Lagarde, who has become the most vocal critic of easing pressure on Athens, is expected to attend the meeting.

She (SNP: ^SHEY - news) could yet move to ensure that the IMF, which has covered about a third of loans to Greece, gets its money back in a previously agreed timescale.