Rating Agencies Affirm France’s AAA Credit

Posted August 10th, 2011 at 1:20 pm (UTC-5)
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The three major credit rating agencies have affirmed France’s AAA rating even as the country’s borrowing costs are increasing.

Standard & Poor’s, Moody’s Investors Service and Fitch Ratings all said Wednesday they are maintaining the country’s top credit standing. The statements by the credit rating agencies came as worries mounted that France could be the latest European nation overwhelmed by the continent’s debt contagion and that its credit could be downgraded, just as Standard & Poor’s last week cut the U.S. AAA rating to AA-plus.

As their worries mounted, investors staged a broad sell-off on the main Paris stock exchange, with stocks down 5.5 percent for the day.

The French government’s borrowing costs are increasing. The interest rates on its borrowing are now nearly a full percentage point higher than for similar loans for Germany, Europe’s biggest economy, even though both countries have AAA credit ratings.

French President Nicolas Sarkozy cut short his Riviera vacation to return to Paris for a cabinet meeting on the perilous financial conditions engulfing Europe and concerns about the French government’s budget deficits.

Mr. Sarkozy’s office said that he would make new budget decisions by August 24, with the government pledging to adopt tax increases and spending cuts.

Some economists say France was too optimistic in assuming a 2 percent growth rate for its economy in this year’s budget. If the economy does not advance at that pace, its tax collections would be reduced, hurting the country’s chances of reducing its budget deficit.

France is aiming for a deficit of 5.7 percent of the country’s economic output this year, reducing that to 4.6 percent in 2012 and to the European Union limit of 3 percent in 2013.