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Portfolio > Economy & Markets > Economic Trends

France Derides Ratings Agencies, Britain

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France’s top central banker, warned that his nation is in danger of losing its AAA credit rating by Standard & Poor’s and Moody’s, on Thursday struck out at ratings agencies, calling them “incomprehensible and irrational,” and also slammed Britain as being more deeply mired in financial woes than France.

Bank of France Governor Christian Noyer said in a Brittany newspaper that there is more politics than economics in the decisions of ratings companies, Bloomberg reported.

“A downgrade doesn’t strike me as justified based on economic fundamentals,” Noyer said. “Or if it is, they should start by downgrading the U.K., which has a bigger deficit, as much debt, more inflation, weaker growth and where bank lending is collapsing.”

Last week, S&P warned it may lower the country’s rating by two levels in a euro-area downgrade; this week Moody’s said that it will review European ratings as well. France carries the highest debt level among top-rated euro zone countries; it amounts to 85% of its GDP. Its financial institutions also carry the heaviest load of debt from five troubled euro zone countries, at $681 billion as of June, according to data from the Basel-based Bank for International Settlements. That makes it vulnerable in the ongoing crisis.

Klaus Baader, co-head of euro area economics research at Société Générale in London, characterized Noyer’s comments as “sour grapes,” and was quoted saying, “One thing that differentiates the euro zone countries is that they don’t have national central banks that can monetize debt.” That being the case, he explained, no matter what the deficit figures, “markets are well aware that’s not really the point.”

French President Nicolas Sarkozy has done his best to cut the potential impact of a downgrade, and in a December 12 Le Monde interview called it “not insurmountable.” He was quoted saying, “If rating companies pull it, we’ll face the situation coolly and calmly. It would be an additional difficulty but it’s not insurmountable. What is important is the credibility of our economic policy and our strategy of reducing spending.”


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