Turkish Forum

Tag: credit rating

  • French credit downgrade could come ‘within days’

    French credit downgrade could come ‘within days’

    Standard & Poor’s expected downgrade could create panic in the financial markets and make eurozone crisis even worse

    Richard Wachman, City editor, Toby Helm and Kim Willsher

    Standard and Poors 007
    Standard and Poor's is expected to cut France's triple A credit rating 'within days' Photograph: Justin Lane/EPA

    France could be stripped of its triple-A credit rating before Christmas, raising new doubts about the survival of the euro, analysts have predicted.

    Standard & Poor’s – one of the three top rating agencies – is expected to cut France’s rating within days, in a move that would weaken its ability to raise funds on financial markets.

    The move would raise doubts over the future of the single currency at a time when questions abound as to whether the deal thrashed out in Brussels represents the breakthrough hoped for in advance of the summit. Andrew Tyrie, chairman of the Commons Treasury select committee, raised the spectre of Greece leaving the eurozone, saying it was unlikely Athens could afford to pay its way if it stayed in the zone. “Few people believe that Greece can remain solvent within the eurozone,” he said. “Should Greece have to leave, the recapitalisation of a number of continental banks would be necessary.”

    David Cameron and George Osborne have stressed that their top priority is for the eurozone to survive the crisis because the consequences of a disorderly breakup would be devastating for the UK as well as the European economies. However, most Tory MPs now doubt that it can survive in its current form. Bill Cash, the veteran Eurosceptic MP, said: “The entire European Union project is unravelling as the euro itself unravels.”

    The imminence of a ratings decision by S&P may explain why France has sought to deflect attention by lashing out against Britain, claiming the UK’s financial position is weaker than its own. Last week the Bank of France suggested the credit rating agencies train their fire on London, even though there seems no imminent danger of Britain losing its premier rating.

    After days of angry exchanges between Paris and London, both sides called for a ceasefire. A senior British diplomatic source said: “I hope all this calms down soon, as it is not in anyone’s interest for it to continue. That, I believe, is why the French prime minister called Nick Clegg on Friday afternoon [to build bridges].”

    The diplomat added: “We can only guess that what’s behind it is that they’re so nervous about losing the triple-A rating, nervous not just for political and economic reasons, but because there’s an election coming up.”

    Analysts said that if France’s rating was slashed its borrowing costs would rise, making it more expensive for Paris to refinance its debt burden in the new year. A downgrade would also hit France’s ability to contribute to the European financial stability facility, set up by members of the eurozone to combat the eurozone’s sovereign debt crisis, and provide emergency funding. Traders in London said the price France has to pay to borrow has already risen, indicating that markets have partially discounted the possibility of a lower credit rating.

    France has to pay more to borrow relative to fellow triple-A rated Germany: when France borrows over 10 years it pays an interest rate that is at least a percentage point higher than what Berlin pays.

    One analyst said: “The overall perception is that French finances are weaker than Germany’s and this imposes significant extra costs on France.”

    Adding together repayments of existing debt, interest owed and new borrowing, France needs to find €400bn (£335bn) next year just to stay afloat. An extra 1% would cost French taxpayers €4bn a year. European leaders are under pressure to boost the firepower of the EU’s multibillion bailout package after Belgium’s credit rating was cut by Moody’s, another of the top three ratings agencies. Moody’s warned that indebted eurozone countries such as Belgium would find it increasingly hard to fund their debts or achieve economic growth in the face of Europe’s austerity drive. “The fragility of the sovereign debt markets is increasingly entrenched and unlikely to be reversed in the near future,” warned Moody’s.

    Rival ratings agency Fitch said it could cut Belgium’s credit rating, along with those of Spain, Italy, Slovenia, Cyprus and Ireland. Fitch kept France’s AAA credit rating intact, although it revised its outlook for the country down to “negative”.

    The latest credit rating changes came as the EU released details of the “fiscal compact” deal designed to rescue the euro.

    www.guardian.co.uk, 17 December 2011

  • UK strikes back at French criticism

    UK strikes back at French criticism

    By George Parker in London and Hugh Carnegy in Paris

    Nick+Clegg+David+Cameron+Meets+Nicolas+SarkozyBritain has described as “simply unacceptable” attacks on the UK economy by French ministers and central bankers, as tensions over the eurozone crisis brought relations between the two countries to a new low.

    Amid fears in Paris that France could lose its triple A sovereign debt rating, François Baroin, French finance minister, on Friday said: “The economic situation in Britain today is very worrying, and you’d rather be French than British in economic terms.”

    His comments follow remarks by Christian Noyer, head of the Bank of France, who said credit rating agencies should be more worried about Britain, which had “bigger deficits, more debt, higher inflation and less growth than us and where credit is shrinking”.

    Initially the attacks were shrugged off by Downing Street. British officials saw the comments as an attempt to deflect attention from the possible downgrade and from new figures showing France had slipped into recession during the fourth quarter.

    Nick Clegg, UK deputy prime minister, told François Fillon, French prime minister, that the comments were “simply unacceptable” and steps should be taken to calm the rhetoric.

    Mr Fillon had earlier talked about “our British friends who are even more indebted than us”. He told Mr Clegg he had intended to illustrate what he believed was the rating agencies’ inconsistency.

    France is irritated it has been threatened with a downgrade despite its budget deficit, at 5.7 per cent of gross domestic product this year, being lower than Britain’s at more than 9 per cent. Mr Fillon told Mr Clegg he had not meant to question Britain’s triple A rating.

    Downing Street said the comments coming from Paris were “not the most helpful contribution”. David Cameron’s spokesman said the coalition government’s deficit reduction plan – one of the most aggressive of any big economy – had reassured the rating agencies.

    But Conservative MPs were less diplomatic. Neil Parish, a Tory MP and former MEP, said: “I suggest the French keep their mouths shut and put their own house in order.”

    Tensions between Britain and France have been rising for weeks and were inflamed when George Osborne, UK chancellor, compared market concerns over French debt with the situation in Greece.

    David Cameron’s use of the veto in last week’s European Union treaty negotiations provoked attacks from Nicolas Sarkozy, although the blockade delivered to the French president precisely the looser intergovernmental deal on eurozone fiscal discipline he had wanted.

    In an attempt to make an agreement more palatable to non-eurozone countries, a first draft said they would not be forced to comply with tough budget rules until they adopted the single currency.

    Mr Cameron and Mr Sarkozy have not spoken since the summit, in contrast to attempts by Angela Merkel to patch up relations with the UK prime minister. On Friday the German chancellor phoned Mr Cameron to discuss negotiations on the new eurozone treaty.

    Eurozone bond markets mostly rallied on Friday despite worries over downgrades of the region’s sovereign debt. Fitch placed Belgium, Cyprus, Ireland, Italy, Slovenia and Spain on watch for a ratings downgrade.

    In thin markets, French and Spanish yields fell as some investors speculated that buying could have been sparked by banks looking to use the bonds as collateral for cheap loans from the European Central Bank next week. Gilt yields were also close to fresh record lows, while US Treasuries were heading for their biggest weekly gains in six weeks.

    “A lot of funds and clients are no longer trading because of year-end and uncertainty in these markets,” said one trader at a European bank. “But yields for Spain and Italy are still very high and it is difficult to see them coming down much before Christmas, particularly with worries over sovereign downgrades.”

    The euro traded more or less flat with sterling. The pound touched 10-month highs this week as fears around the eurozone started to prompt some sellers in the single currency. European equities were also more or less flat as they lacked clear direction.

    Additional reporting by David Oakley and Joshua Chaffin

    www.ft.com, 16 December 2011