Economists expect France to lose AAA rating

FRANCE will lose its AAA credit rating early next year regardless of last-ditch efforts by President Nicolas Sarkozy to resolve the eurozone crisis at an EU summit this week, a Reuters poll of economists showed.

The snap survey of 13 economists found that 11 of them think France will be downgraded by one of the major ratings agencies within the next three months.

The only question, following this week’s blanket eurozone credit warning by Standard & Poor’s, is whether France will be cut by one notch to AA+ or by two to a straight AA.

“If you apply Standard and Poor’s methodology based on quantitative factors, France should already have a AA rating, as should the US and Britain,” said Jean-Christophe Caffet, economist at investment bank Natixis.

He noted, however, that ratings agencies take into account subjective criteria, such as the credibility of the government’s budget plans, making it difficult to estimate the final outcome.

Worries over France’s credit rating have been mounting for weeks as the eurozone sovereign debt crisis has unfurled, spreading from Greece to Portugal and Spain, and even reaching the third-largest economy in the bloc, Italy.

Late on Monday, S&P’s warned it could carry out a mass rating downgrade of 15 eurozone nations within 90 days, depending largely on the outcome of Friday’s EU summit to discuss tightening governance in the single currency bloc. France was the only AAA country in the zone singled out for a possible two-notch downgrade, with S&P’s saying the country’s growth forecast was overly optimistic, its deficit reduction plans inadequate, and its banks liable to need state funds to patch up balance sheets, which the government has denied.

On the surface, French finances look no worse than those of EU neighbour Britain, whose triple-A rating is not in danger. But France has come under particular scrutiny in markets due to its banking sector’s exposure to Greek and Italian debt, and a weak growth outlook undermining the credibility of Sarkozy’s deficit reduction plans.

The government says its latest deficit-reduction plan, unveiled in November, includes a €6 billion cushion, meaning its 2012 budget works even if growth is half the official target of 1%. But many economists regard even anaemic growth of 0.5% next year as unobtainable and are predicting a recession for 2012.