S&P to Cut France by One Notch .
By GERALDINE AMIEL, PATRICIA KOWSMANN and COSTAS PARIS
PARIS—Standard & Poor's Ratings Services has notified the French government of its decision to downgrade the country's credit rating, a senior French government official said Friday, a move that marks the long-awaited blow to France's international standing and knocks the country out of the top financial league of the euro zone.
Standard & Poor's ratings agency could announce downgrades to the credit ratings of a number of European governments as early as today, Charles Forelle reports on Markets Hub. (Photo: Philippe Huguen/AFP/Getty Images)
.S&P has informed the French government that the country's cherished triple-A rating will be lowered one notch to AA+.
S&P has also notified other European governments of looming ratings downgrades, according to people familiar with the matter.
One of these people said an S&P notice is being circulated among euro-zone governments and that an announcement "could be imminent." S&P declined to comment.
The prospect of cuts in sovereign credit ratings has loomed over euro-zone bond markets for weeks. Rising government borrowing costs, a threatened Greek default and the growing risk of a new recession have contributed to a darkening 2012 outlook for the region. European leaders have scheduled a summit for the end of this month to discuss fiscal reforms and to finalize a new rescue package for Greece, projects made financially and politically difficult by rising strains on many government budgets.
In December, S&P placed 15 of the 17 euro-zone countries on watch for possible downgrades, citing new systemic stresses that are pressuring the euro zone's credit standing as a whole.
The news pushed the euro to a 16-month low against the dollar in Friday trading in New York. The common currency dropped as low as $1.2647, down from $1.2814 late Thursday. It was most recently trading at $1.2663.
News of the imminent downgrades also rocked euro-zone government-bond markets. Bonds issued by fiscally frail euro-zone countries such as Italy and France rose following the report, while the resulting flight to safety sent the near-month German bund futures contract soaring to a record high. Germany was expected to hold onto its coveted triple-A rating.
The map of Europe is featured on the face of a two-euro coin.
.The selloff spurred the European Central Bank into action, with traders citing purchases of Italian and Spanish government bonds after yields surged.
The downgrade of France's rating will, indirectly, raise the cost of borrowing for the European Financial Stability Facility, whose own rating depends largely on the credit quality of the countries that back it. The EFSF, which has also been placed on negative credit watch by S&P, would then have to pass on those higher borrowing costs to countries such as Ireland and Portugal, making it even harder for them to reduce their budget deficits as planned.
The potential downgrades would also be a blow to Italy, which had seen a decline in its bond yields in recent sessions. The euro zone's third largest economy is scheduled to sell €440 billion ($563.8 billion) of bonds and treasury bills in 2012 and investors are expected to demand higher yields for the risk of holding a lower rated security.
The S&P's negative ratings watch included top-rated Germany, France, the Netherlands, Austria, Finland and Luxembourg, countries that S&P said could lose their premier credit status if European policy makers continue stumbling in efforts to tackle the immediate market confidence crisis. S&P also pointed to markedly higher risk premiums on a growing number of euro-zone sovereigns, including some rated triple-A.
Germany, which also has a triple-A credit rating, isn't expected to be among the downgrades.
Greece and Cyprus were the only two euro-zone sovereigns not affected by S&P's latest action. Cyprus had already been placed on negative watch, and Greece's status remained unchanged because its double-C rating already connotes a relatively high near-term probability of default.
Fitch Ratings, which has placed six euro-zone countries on negative ratings watch, has said it expects to complete its review by the end of January. But France isn't one of them and Fitch has said it doesn't plan to downgrade the country's triple-A rating in 2012, although it has a negative outlook. Moody's Investors Service is also reviewing European sovereign ratings, including those of Italy and France.