France’s credit rating was cut to A from AA- by Egan-Jones Ratings Co., which cited the risk that the country’s government will have to bail out its banks.
“It’s increasingly obvious that France is going to have to support its banks,” Sean Egan, the Haverford, Pennsylvania-based firm’s president, said today in a telephone interview.
The sovereign debt crisis that began more than two years ago in Greece is putting more pressure on France as European Union political leaders struggle to convince investors they’ll be able to stem its spread. The extra yield investors demand to lend for 10 years to France instead of Germany has climbed to 111 basis points today from as low as 28 basis points in April.
“The EU to date hasn’t directly addressed the fundamental problems in the periphery countries,” Egan said. France’s borrowing costs will rise as the crisis continues, Egan wrote today in a report.
Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, the three largest providers of credit ratings, all assign France their highest grades. On Nov. 10, after S&P sent and then corrected an erroneous message to subscribers suggesting France’s rating had been cut, French 10-year bond yields surged and European stocks dropped.
France’s rising debt also contributed to the decision, Egan said. The country’s debt reached 100 percent of its gross domestic product in June, up from 76 percent two years earlier, according to Egan-Jones. President Nicolas Sarkozy, who faces an election in April and May of next year, has announced two sets of tax increases and spending cuts since August and pledged to do whatever it takes to cut the budget deficit to 3 percent of GDP in 2013.