Moody's downgrades France to Aa1 from Aaa, maintains negative outlook

Moody's Investors Service has today downgraded France's government bond rating by one notch to Aa1 from Aaa. The outlook remains negative.

via www.moodys.com

Although the news of the downgrade is a blow, the finance minister, Pierre Moscovici, has said that the country is undertaking reforms that will help the country.

Moody's went on to say in their note that three issues were behind their decision:

1.) France's long-term economic growth outlook is negatively affected by multiple structural challenges, including its gradual, sustained loss of competitiveness and the long-standing rigidities of its labour, goods and service markets.

 2.) France's fiscal outlook is uncertain as a result of its deteriorating economic prospects, both in the short term due to subdued domestic and external demand, and in the longer term due to the structural rigidities noted above.

 3.) The predictability of France's resilience to future euro area shocks is diminishing in view of the rising risks to economic growth, fiscal performance and cost of funding. France's exposure to peripheral Europe through its trade linkages and its banking system is disproportionately large, and its contingent obligations to support other euro area members have been increasing. Moreover, unlike other non-euro area sovereigns that carry similarly high ratings, France does not have access to a national central bank for the financing of its debt in the event of a market disruption.

Comments

[French Alps American]

I spent 4 years living in the French Alps and still spend several months a year there since my husband is French and from the region. But I could never find decent employment in our small city and the employment rate is rising steadily. Now I'm back in the U.S. 9 months a year and having so many more opportunities here than I had in France. It makes me sad to see the downturn in Europe and I worry about the future.