Fitch downgrades France from top rating

PARIS - Agence France-Presse

A closeup photo taken on December 31, 2011 in Lille, shows triple 'A' letters. AFP photo

Ratings agency Fitch downgraded France from the top AAA credit rating on July 12, citing a heavier government debt load and poor prospects for growth.

In slashing France's rating to 'AA +', Fitch became the last of the big three credit raters to knock France off the top perch. Last year Standard & Poor's and Moody's already downgraded France from the AAA club.

Fitch, which is part French owned, had warned in its previous appraisal that France had reached the very limit of being able to hold on to its top grade grail.

But with Fitch now expecting public debt to peak next year at 96 percent of gross domestic product, the agency said it had no choice but to lower the mark, though with a stable outlook.

"The agency commented at the time of its previous rating review that this was the limit of the level of indebtedness consistent with France retaining its 'AAA' status assuming debt was firmly placed on a downward path from 2014." France's debt ratio, the agency added, was "significantly higher" than the AAA median of 49 percent.

France's fiscal problems were pressing "owing to the uncertain growth outlook and the ongoing eurozone crisis, even assuming no wavering in commitment to fiscal consolidation," Fitch said.

2013 forecast pessimistic
Since Socialist Francois Hollande became president in 2012, his government has raised taxes and implemented targeted reforms and spending cuts to try to whittle down the country's huge debt load.

But with the eurozone crisis still alive, and the currency bloc still mired in recession, the measures have proven ineffective and unemployment soared to a 15-year high of 10.9 percent in May.

"The weaker economic outlook is the primary factor behind increases in the budget deficit and France" needing more time to meet EU rules on government spending, it said.

Fitch forecasts that the French economy will contract by 0.3 percent in 2013 and then return to slight growth of 0.7 percent in 2014.

This is more pessimistic than the government's outlook of 0.1 percent growth this year and 1.2 percent in 2014.

French Finance Minster Pierre Moscovici brushed off the downgrade Friday maintaining that "French debt is among the safest and most liquid in the eurozone".

With the confidence of investors strong, French borrowing prices were low and "this confidence reinforces the government's conviction that its strategy is the right one," he said.