Moody’s Investors Service on Monday downgraded France, stripping it of its prized “AAA” credit rating due to concerns over its prospects for economic growth and its exposure to Europe’s financial crisis.
Moody’s lowered France’s rating one notch to “Aa1.” It kept the rating’s outlook at negative, meaning it could face future downgrades.
The ratings agency said that it was becoming increasingly difficult to predict how resilient France would be to future euro-area shocks.
However, the agency added that the country’s rating remains high compared with many other European countries. It cited France for its diversified economy and “a strong commitment to structural reforms and fiscal consolidation.”
The downgrade will heighten fears that Europe’s debt crisis is spreading from the so-called peripheral nations like Greece, Portugal and Ireland to the core of the euro region. Standard & Poor’s, a rival rating agency, lowered its rating on France’s debt one notch from “AAA” to “AA+” in January, citing the deepening political, financial and monetary problems within the eurozone.
French Finance Minister Pierre Moscovici 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,” said Moscovici, a member of the ruling Socialist government. “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.”
The yield on the French 10-year government bond fell 1 basis point to 1.96 percent on Monday. That is 60 basis points more than equivalent German government bonds, suggesting that investors see them as riskier.