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France plays down Moody's rating downgrade

The French government says the country is still a good investment destination as it "still represents sound value"

AFP, Tuesday 20 Nov 2012
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France on Tuesday said it was still a good investment destination after international ratings agency Moody's cut the government bond rating by one notch from the highest level to "Aa1".

Moody's was the second of the three major ratings agency to cut France's gilt-edged triple A rating on Monday, and warned that a further downgrade could be on the cards.

Standard and Poor's did so in January but Fitch has maintained its assessment of French debt so far.

"I would like to put in perspective the impact of this decision," said government spokeswoman Najat Vallaud-Belkacem.

"France still represents sound value, it is in second place just after Germany," she told France Inter radio.

"Even today, investors lend to France in very favourable conditions," she said. "For example, we make short-term borrowings at negative rates and that is going to continue."

She also said the markets appeared unruffled by the move.

The downgrade came against a background of political tension between President Francois Hollande and allies on the left as well as intense political bickering among the opposition.

Moody's statement pointed to many structural problems with the French economy which made it harder to compete on a global level, noting that Paris could face fiscal issues in the future and that it was exposed to demands for financing from heavily-indebted eurozone partners.

The ratings agency took note of reform plans that have been unveiled by the new Socialist French government, but added: "The track record of successive French governments in effecting such measures over the past two decades has been poor."

It said the challenges France faced included "the rigidities in labour and services markets, and low levels of innovation, which continue to drive France's gradual but sustained loss of competitiveness and the gradual erosion of its export-oriented industrial base."

The ratings agency also said "the predictability of France's resilience to future euro area shocks is diminishing."

Moody's however stressed that France still had an excellent rating because of its "significant credit strengths," a "large and diversified economy" and "the government's commitment to structural reforms and fiscal consolidation."

The downgrade put France behind eurozone partners like Finland, Germany, Luxembourg and the Netherlands, which have retained top AAA ratings though they all have a negative outlook from at least one of the three agencies.

It came less than a week after the British weekly The Economist called France "the time-bomb at the heart of Europe" for many of the same reasons as those pointed to by Moody's.

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