Moody’s downgrades two French banks over exposure to Greek debt

MOODY’S has cut the credit ratings of two French banks because of their exposure to Greece’s debt, highlighting growing risks to Europe’s financial sector from a deepening eurozone sovereign debt crisis.

But the euro and European stocks were lifted by an announcement by the head of the European Commission that it would soon present options for issuing a common eurozone bond despite huge political hurdles, especially in Germany.

The ratings agency’s one-notch downgrade of Société Générale and Credit Agricole came hours before the leaders of Greece, France and Germany held a video conference on measures to head off a potential Greek default, which has prompted rising global alarm.

China added its voice to US concerns over Europe’s apparent inability to stop debt contagion from spreading, while Indian and Brazilian officials said major emerging economies were discussing increasing their euro sovereign holdings.

Moody’s kept BNP Paribas on review for a ratings downgrade saying the bank’s profitability and capital base provided an adequate cushion to support its Greek, Portuguese and Irish exposure.

France’s biggest bank announced a plan to sell €70 billion in assets to help ease investor fears about leverage and funding that hit its two main rivals. Shares in all three big French banks fell in early trading.

French President Nicolas Sarkozy told his cabinet France would do everything possible to save Greece but a government spokeswoman said Athens must give guarantees that it would finally implement agreed measures to cut its deficit. “We want a guarantee that the recovery plan announced will be put into action,” education minister Valerie Pecresse said, adding no statement would be made after the call.

Chinese Premier Wen Jiabao said Beijing was willing to help its biggest trading partner, but added that Europe must stop the crisis — which now threatens Italy — from growing.

Wen’s comment echoed concerns voiced by US President Barack Obama who earlier this week urged the big eurozone states to take responsibility for weaker members and called for a “more effective co-ordinated fiscal policy”.