Fallout after French credit rating downgraded

Francois Fillon said that while last night’s decision by ratings agency Standard & Poor shouldn’t be underestimated, it shouldn’t be turned into a drama.

Germany’s Chancellor Angela Merkel said the downgrade of France and eight other Eurozone nations underlined the need to come up with new fiscal rules and a rescue fund quickly.

Following the news that Standard & Poor’s (S&P) decision to strip France of it’s gold-plated AAA credit rating, and to also the lower the long term ratings of Austria, Malta, Slovakia and Slovenia France’s finance minster said it was “bad news” but not a catstrophe.

Francois Baroin said: “You have to be relative, you have keep your cool. It’s necessary not to frighten the French people about it.”

In an implicit attack on EU leaders’ failure to reassure markets, S&P said its ratings actions were “primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone”.

The agency also accused EU leaders of believing wrongly that blame for the economic crisis lay mostly on “fiscal profligacy at the periphery of the eurozone”.

It added in a statement: “The outlooks on the long-term ratings on Austria, Belgium, Cyprus, Estonia, Finland, France, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, and Spain are negative, indicating that we believe that there is at least a one-in-three chance that the rating will be lowered in 2012 or 2013.”

S&P’s decision to downgrade nine eurozone nations sparked an angry reaction from Brussels, who defended its handling of the crisis.

Economic Affairs Commissioner Olli Rehn declared in a statement: “I regret the inconsistent decision by Standard & Poor’s concerning the rating of several euro area member states, at a time when the euro area is taken decisive action in all fronts of its crisis response.

“These initiatives push forward the necessary fiscal consolidation and structural reform in our member states, address the fragilities of the banking sector, reinforce our financial backstops and strengthen our economic governance.

“The recent EU decisions, combined with action by the European Central Bank, CB, have been instrumental in easing tensions in sovereign bonds markets.”

In August, S&P stripped America of its cherished triple-A credit rating for the first time in its history because the deficit reduction plan passed by Congress did not go far enough to stabilise the country’s debt situation.

The UK has so far clung on to its top rating but a recent report by rating agency Moody’s said the eurozone debt crisis had increased the risk of a downgrade.