France downgrade fuels euro worries
The eurozone crisis is facing fresh turmoil after the credit worthiness of France and eight other eurozone nations were downgraded by a leading ratings agency.
In a dramatic new blow to the struggling single currency, Standard & Poor's (S&P) stripped France of its gold-plated AAA credit rating, and also lowered the long-term ratings on Austria, Malta, Slovakia, and Slovenia, by one notch.
The rating levels for Cyprus, Italy, Portugal and Spain were dropped two notches, while there was no change for Belgium, Estonia, Finland, Germany, Ireland, Luxembourg, and the Netherlands.
The 17th eurozone nation, Greece, already in deep trouble, was not reassessed in the latest, devastating declaration from Standard & Poor's.
The move to strip France of its AAA is key because the country is partly responsible for underwriting the eurozone bailout fund, which is at the heart of efforts to ease fears of a eurozone collapse.
French finance minister Francois Baroin admitted the downgrade was "bad news" but insisted it was not "a catastrophe". He said: "You have to be relative, you have keep your cool. It's necessary not to frighten the French people about it."
In an implicit attack on EU leaders' failure to reassure markets, S&P said its ratings actions were "primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone".
The agency also accused EU leaders of believing wrongly that blame for the economic crisis lay mostly on "fiscal profligacy at the periphery of the eurozone". It added in a statement: "The outlooks on the long-term ratings on Austria, Belgium, Cyprus, Estonia, Finland, France, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, and Spain are negative, indicating that we believe that there is at least a one-in-three chance that the rating will be lowered in 2012 or 2013."
World markets fell as news emerged that the downgrade was about to be announced with the euro declining against most currencies, including the pound.
S&P's decision to downgrade nine eurozone nations sparked an angry reaction from Brussels, who defended its handling of the crisis. Economic Affairs Commissioner Olli Rehn declared in a statement: "I regret the inconsistent decision by Standard & Poor's concerning the rating of several euro area member states, at a time when the euro area is taken decisive action in all fronts of its crisis response."