French credit rating downgrade

Standard Poor's imminent downgrade of eurozone economic giant France's triple-A credit rating has sent stocks sliding and the euro plummeting.

In Brussels, EU government sources told AFP the ratings agency had warned members of the bloc France would be downgraded by one notch, while fellow top-line creditors Germany, Luxembourg and the Netherlands would be spared.


 'The Standard Poor's downgrade (for France) is by one notch,' one of the sources said. The credit rating agency had indicated in December that a cut of two notches could have been applied to the eurozone's second biggest economy.



The downgrade could force France's borrowing costs up at a time when it has already been forced to impose austerity measures to control its deficit, and is a political humiliation for President Nicolas Sarkozy.

Sarkozy faces a tough re-election battle in less than 100 days and reportedly told allies last month: 'If we lose the triple-A, I'm dead.'

France's budget minister and government spokeswoman Valerie Pecresse refused to confirm the imminent downgrade, insisting: 'France is a safe investment.'
But opposition Socialist lawmaker Jean-Marie Le Guen branded the loss of the triple-A 'a triple failure for Sarkozy', amid charges from the left that the president's tax cuts had left France more exposed than its neighbours.


European leaders are due to meet in Brussels on January 29 to nail down details of a fiscal pact designed to reassure bond markets that their deficit reduction plans are on course and their debts safe.
Earlier this week, ratings agency Fitch offered markets reassurance that it did not plan to downgrade France's top triple-A credit rating in 2012, unless the country suffered major economic shocks.

But Standard Poor's still had the eurozone bloc under scrutiny and - while the firm did not confirm it was to act after markets closed on Friday - the reports seemed to have ended the optimism.

France had been on notice that its triple-A debt rating was on the line, amid fears over its large public deficit and its own banks' exposure to even riskier sovereign debt in eurozone partners Greece and Italy.
Earlier on Friday, Italy raised 4.75 billion euros at mostly lower rates in a bond auction, reflecting what was then still improved market confidence and European Central Bank efforts to boost eurozone liquidity.
German Foreign Minister Guido Westerwelle said he would travel to Greece on Sunday for talks on the crisis, taking with him a message of 'encouragement' and 'expectation', Berlin said.

Meanwhile, German Chancellor Angela Merkel's spokesman said she will host the leaders of Portugal, Sweden and Austria next week for informal talks on the eurozone debt crisis and fiscal integration, her spokesman said.
Borrowing by Spain's struggling banks from the European Central Bank hit a 17-month high in December as it offered cheap long-term loans to the eurozone, the Bank of Spain said.