Moody's: France's rate Outlook at risk

11:28 PM Frances, Moodys, outlook No Comments

PARIS - Moody's a sustained increase in which income coupled with weakening of economic growth could its debt warned France on Monday its ratings Outlook damage,'s second largest economy its AAA status lose fueling concern the euro area.

Worry about a high budget deficit and banks have drawn France exposure to other difficult European government bonds, in the line of fire of the bloc, crisis, despite the Government force that she needed everything, to protect their best note would do.

Moody's announced mid-October that France could put it an AAA rating on negative Outlook in three months, if the costs for rescue helps French banks and other members of the eurozone its budget overburdened.

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On Monday, the rating agency said that a deterioration in the French bond market-amid fears the sovereign debt crisis to the eurozone core-views, was a threat to the credit has been distributed but not at this stage to its actual assessment.

"Increased borrowing costs for a period of time the fiscal challenges that would reinforce French Government amid a deteriorating growth prospects, with negative credit impact, faces keep", said senior credit officer Alexander Kockerbeck in Moody's pro credit Outlook dated 21 November.

The premium investors calculate on French ten-year debt in comparison, the German equivalent was up but also short of 202 bps last week met about 20 basis points to 163 bps after the publication of Moody's continued to report, a new euro era high.

Moody's said, that to record levels last week, almost twice as much as Germany France pays for long-term funding, adding that increase in income as one a 100 basis-point additional 3 billion euros per year is refinancing costs.

Many investors have already discounted a downgrade to France's AAA rating, given the expectations that its economy will be recession next year.

"In the current environment people France be downgraded, expected", said Olivier Bizimana from Morgan Stanley, say, that it probably appeared at Moody would work over France's stable Outlook, if nothing changed. "The budgetary position is likely still worse than other triple a countries and on top of that you have the back up to a Central Bank."

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France AFT debt agency said on Monday, that despite the recent increase of which results in proliferation of French scale of German guilt, his average medium - and long-term, remained close to historically low levels the financial costs.

"For the first 11 months of the year, it amounted to 2.78 percent, the (second) lowest level since the creation of the euro, after observed 2.53 percent in 2010," AFT of the Reuters news agency in a statement.

Economists said however, that France you will be sucked into a "Tax case risked" where growth slowing required more austerity measures, which, in turn, further slowing growth.

"If you have interest rates that it increase resources, on top of that you have vicious circle, where it is almost impossible to stabilise the trajectory of debt and pressure could add to the evaluations," Bizimana said.

The French Government recently cut its growth forecast for the next year by 1%, 1.75%, but most private economists consider, that still much too optimistic.

Budget Minister Valerie Pecresse said that more austerity measures, take the Government would not notice a 65 billion euro package cuts this month say a budget buffer of 6 billion euros next year there space to breathe would be, even if growth below average.

"We especially must avoid measures, to overthrow that country into a recession" said Pecresse.

But Moody's said, that slows down growth combined with rising interest rates hard for France would make it the target of 5.7 percent cut the budget deficit from an estimated at the end of this year to breach the EU limit of 3 per cent by the year 2013 hit.

"The French social model can be not financed, when the French economy is not persisted potential." With further slowdown of GDP growth that the political importance of further savings in this case would be tested for the Government, ", said note from Moody's on Monday."

In a research report on Monday of the stress in euros said JP Morgan David Mackie, zone bond markets increases the need for a dramatic response from policy-makers.

"Not surprisingly, all eyes are on the ECB as the only institution capable of quick and determined, step" he said, adding the ECB would begin to intervene also core countries in the bond markets.

Copyright 2011 Thomson Reuters.