Finance

FINANCE | 13.01.2012

S&P downgrades France's AAA credit rating, Greece talks stall

 

Rumors of the downgrade had been circulating all day

France's creditworthiness has been cut by rating agency Standard & Poor's from a top-notch AAA to AA+. France's finance minister called it "not good news, but not a disaster," and said S&P would not set economic policy.

 

Rating agency Standard & Poor's on Friday cut France's credit worthiness from AAA to AA+, confirming what jittery markets had been anxiously anticipating.

Speaking defiantly on public television, French Finance Minister Francois Baroin said S&P had indeed cut France's credit rating, but that the French government did not plan any more austerity measures "because it's not a case of budgetary discipline."

"It's not good news, but it's not a disaster either," Baroin said on France 2 television. "It's not the rating agencies that dictate French policy."

Rumors of the downgrade had been circulating throughout the day, alongside the possible cuts to other eurozone countries. The euro continued its steady decline, at one point dropping to below $1.27, a 16-month low.

News agency AFP quoted an anonymous EU source as saying Austria had also lost its AAA-rating, leaving Germany, the Netherlands, Luxembourg and Finland as the only eurozone countries to retain their top rating.

German Finance Minister Wolfgang Schäuble said he saw France on the right path, but that the downgrade wasn't completely unexpected.

Baroin said rating agencies would not dictate French policy"We're not entirely surprised by this," he told reporters in the northern city of Kiel. "We know that there is uncertainty in the eurozone."

He added, however, that European leaders would work hard to remove that uncertainty, and that the recent successful bond auctions in Italy and Spain shows that their work has already begun to have an effect.

Talks on hold in Greece

Meanwhile, talks between Greece and its major lenders to write down the country's mountainous debt burden stalled on Friday, adding to fears that Athens will go insolvent in a matter of months.

The Institute of International Finance (IIF), the international lobby group representing banks that hold Greek government bonds, has been negotiating how private lenders might forgive some of Greece's debt to keep it afloat. Amid several media reports that the talks were on the verge of collapse, the IFF released a statement saying the talks were on hold.

"Discussions with Greece and the official sector are paused for reflection," the IFF said. "Unfortunately, despite the efforts of Greece's leadership, the proposal put forward... has not produced a constructive consolidated response by all parties."

Leaders of the 17 nations that share the euro currency are insisting that banks take a voluntary 50-percent loss, or "haircut," worth 100 billion euros ($126.7 billion) before they approve a second package of 130 billion euros in emergency loans for Greece.

IIF chief negotiators Charles Dallara and Jean Lamierre said in a joint statement that they "very much hope, however, that Greece, with the support of the euro area, will be in a position to re-engage constructively with the private sector with a view to finalizing a mutually acceptable agreement."

IIF spokesman Frank Vogl said developments over the coming days would determine when the talks resumed.

Author: Andrew Bowen (AP, AFP, Reuters, dpa)
Editor: Nicole Goebel

 

 

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