European news agencies are reporting that France is about to lose its top-rated credit standing, the latest fallout from Europe’s two-year governmental debt crisis.
France has been one of six countries among the 17 that use the common euro currency that maintained a top AAA rating. But news reports Friday said that one of the world’s three key credit-rating firms, Standard & Poor’s, had informed European leaders that it had decided to downgrade France one notch to AA+.
With the downgrade, France’s borrowing costs could increase and hurt its economy, the eurozone’s second largest after Germany. But U.S. borrowing costs did not increase last year when S&P knocked the U.S. credit rating down one level.
S&P made no announcement of the French downgrade while Friday stock trading remained open in the U.S., or possible cuts in the credit standing of other countries. S&P had warned last month that 15 eurozone nations were at risk of a downgrade, although news accounts said that four other countries with top ratings — Germany, Luxembourg, Finland and the Netherlands — would avoid a cut. The fate of Austria, the sixth eurozone nation with a top rating, was not known.
Three eurozone nations — Greece, Ireland and Portugal — have already been forced to secure international bailouts, 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.