Moody's downgrades France rating

French PM
France came under fresh economic pressure as the international ratings agency Moody's cut the French government bond rating by one notch from the highest level to "Aa1" and warned that an additional downgrade was possible.

Moody's was the second of the three major ratings agency to cut France's top rating, after Standard and Poor's did so in January. Fitch has maintained its assessment of French debt so far.

In keeping France on a negative outlook, Moody's yesterday signalled that its rating could be cut again in the medium term, and the news came against a background of political tension between President Francois Hollande and allies on the left, but also amid 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."

French Finance Minister Pierre Moscovici told AFP the downgrade was an "indictment of past management," a reference to the previous conservative government, which would incite the new government to "quickly put into effect" the already announced reforms.

France is still "well rated," Moscovici pointed out, while insisting that "this decision concerns the situation left by our predecessors."

Moody's said its decision was based on three factors, the first of which was "the risk to economic growth, and therefore to the government's finances, posed by the country's persistent structural economic challenges.

"These include 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 International Monetary Fund and the COE-Rexecode Institute, which is close to French employers' associations, have also warned that France could lose market share to countries from southern Europe that have approved robust economic reforms.

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