Monday, November 21, 2011

The Writing is on the wall. France in trouble

The old joke with the little ones...I see England, I see France, I see your underpants.

An email just arrived:

France Warned on Outlook for AAA Credit Rating By Moody's
2011-11-21 14:38:08.761 GMT

    Nov. 21 (Telegraph) -- Moody's warned France that a
sustained rise in its debt yields coupled with weakening economic
growth could harm its ratings outlook, fuelling concern the
eurozone's second largest economy might lose its AAA status.
    Worries about a high fiscal deficit and banks' exposure to
other troubled European sovereign debt have drawn France into the
firing line of the bloc's crisis, despite the government's
insistence it would do everything necessary to protect its top
    Moody's announced in mid-October it could place France's AAA
rating on negative outlook in three months if the costs for
helping to bailout French banks and other eurozone members
overstretched the country's budget.
    Today, the rating agency said that a worsening in the French
bond market - amid fears the sovereign debt crisis was spreading
to the eurozone's core - posed a threat to its credit outlook,
though not at this stage to its actual rating.
    "Elevated borrowing costs persisting for an extended period
would amplify the fiscal challenges the French government faces
amid a deteriorating growth outlook, with negative credit
implications," Moody's said.
    The premium investors charge on French 10-year debt compared
to the German equivalent was up around 20 basis points at 163 bps
following publication of Moody's report but remained well short
of the 202 bps hit last week, a new euro-era high.
    Moody's said that at last week's record level, France pays
nearly twice as much as Germany for long-term funding, adding
that a 100 basis point increase in yields roughly equates to an
additional €3bn (£1.9bn) in yearly funding costs.
    Many investors have already discounted a downgrade to
France's AAA rating, given expectations its economy will enter
recession next year.
    "In the current environment, people are expecting France to
be downgraded," said Olivier Bizimana of Morgan Stanley, saying
it appeared likely Moody's would revise down France's stable
outlook if nothing changed.
    "The fiscal position is probably worse than other triple A
countries and on top of that you don't have the back up of a
central bank."
    France's AFT debt agency said on Monday that, despite a
recent increase in the spread of French yields over benchmark
German debt, its average medium- and long-term financing cost
remained close to historically low levels.

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