France And Austria Lose AAA Credit Ratings - Euro crashes

[dutchman]

France and Austria have both lost their top-notch AAA credit rating in the latest round of downgrades by ratings agency Standard & Poor's.



More countries are expected to be downgraded in the next few hours.

Speaking on France 2 television, Francois Baroin said his country's notification was a "half-surprise".

"It is not good news," he said, but insisted the country was taking the right direction.

"The markets had perhaps anticipated the move, which is why their reaction was moderated this afternoon."

The euro fell to a 17-month low on the currency markets amid early reports of the news - the latest in the eurozone crisis - and stock markets across the world also declined.

It is understood the agency will confirm the announcement after markets close in the US.

French president Nicolas Sarkozy held crisis talks with key ministers after news of the downgrade emerged.

Other countries within the single market are also at risk of a downgrade by the prominent ratings agency, among them Italy and Slovakia.

Reuters columnist Peter Thal Larsen told Sky News: "If we are talking about expectations then clearly France is what we would consider to be most vulnerable to a potential downgrade."

A French downgrade would be significant due to the country's role as one of the AAA guarantors of the eurozone's rescue fund, the EFSF, which would in turn also need to be downgraded.

Germany would then become the only major AAA-rated economy underwriting the fund.

This would make it more difficult to raise funds to bail out weaker countries, like Italy and Spain, if the need arose.

But Mr Larsen added that the move by Standard & Poor's (S&P) would not be particularly surprising, as the ratings agency had put several eurozone countries, including Germany, on notice a few months ago.

He said the downgrades would provide a "reality check" to the markets that the eurozone's problems are nowhere close to being solved.

Germany, The Netherlands, Finland and Luxembourg are among the countries not believed to be affected by a downgrade.

The announcement is particularly bad news for Nicolas Sarkozy who faces presidential elections later this year and has staked much of his reputation on being the man to lead France out of the crisis.

Valerie Pecresse, a French government spokeswoman, told a television channel in the country: "France today is a safe investment, it can repay its debt and the news concerning our deficit is better than expected."

Last December, when rumours of a potential French downgrade began, politicians in the country reacted strongly, suggesting that any downgrade would be unjustified.

It was even suggested publically by one senior figure that Britain should be downgraded before France because it had "as much debt, more inflation, less growth than us and…credit is slumping".

Reports of a breakdown in talks between Greece and its banks to restructure its debts also fuelled fears of a default.

[rebbonk]

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