France, Austria Lose Their Top Credit Ratings

Posted January 13th, 2012 at 3:20 pm (UTC-5)
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France and Austria have lost their top-rated credit standings, the latest fallout from Europe's two-year governmental debt crisis.

The two countries had been among six that use the common euro currency that maintained a top AAA rating. But France late Friday said that one of the world's three key credit-rating firms, Standard & Poor's, had downgraded it one notch to AA+, while news agencies reported S&P had also cut Austria to the same level.

French Finance Minister Francois Baroin called the downgrade “bad news,” but not “a catastrophe.” He said ratings agencies would not dictate French economic policies.

The New York-based financial services firm made no announcement about the change in its credit ratings pending the end of Friday stock trading in the United States. But European news accounts said that the four other eurozone nations with AAA ratings — Germany, Luxembourg, Finland and the Netherlands — would not be downgraded.

The borrowing costs for France, the eurozone's second largest economy after Germany, and Austria could increase on the premise that they are now less creditworthy. But U.S. borrowing costs actually fell last year after S&P knocked the American government's credit rating down one level.

S&P had warned last month that 15 of the 17 eurozone nations were at risk of a downgrade. It was not known whether S&P had downgraded any other countries beyond France and Austria.

Three eurozone nations — Greece, Ireland and Portugal — have already been forced to secure international bailouts during the debt crisis, but Greece's efforts to secure a new $165 billion assistance package appeared to be in jeopardy on Friday.

A Greek financial official predicted on Thursday that the Athens government would complete negotiations by the end of next week, with its private creditors to cut the amount of debt it owes them by about $127 billion. But talks between government officials and those representing large banks ended in a stalemate late Friday.

A global banking group, the Institute of International Finance, said the negotiations have been “paused for reflection” and that the two sides have “not produced a constructive consolidated response.”

European leaders have warned Greece it will not receive the new bailout unless it reaches agreement with the creditors and imposes new unpopular austerity measures.