Fitch Revises France Rating To Negative Outlook

France’s AAA rating, which has been threatened for months by concerns about a Europe recession, eurozone contagion, and its debt level moved closer to perilous levels, as Fitch reexamined it rating. The credit agency also said it would review six other nations for downgrade.

In a note, Fitch reported

Fitch Ratings has today affirmed France’s Long-term foreign and local currency Issuer Default Ratings (IDRs) as well as its senior debt at ‘AAA’. Fitch has also simultaneously affirmed France’s Country Ceiling at ‘AAA’ and the Short-term foreign currency rating at ‘F1+’. The rating Outlook on the Long-term rating is revised to Negative from Stable.

The concern, however, was

government debt to GDP is currently projected by Fitch under its baseline scenario to peak in 2014 at around 92%, higher than any other ‘AAA’-rated sovereign with the exception of the UK and US and significantly higher than other ‘AAA’-rated Euro Area peers.

Despite comments to the contrary by EU region leaders, no viable bailout fund has been created, which makes contagion more likely if Italy or Spain falters. There is no present evidence that the IMF has the capital to exercise a bailout of its own. The ECB has it will support the region’s banks, but not sovereign nations. That says very little. If the value of the national debt of Spain or Italy is undermined by a default, the danger to regional banks is extreme.

Douglas A. McIntyre