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France's Unsolicited Long-Term Ratings Lowered To 'AA+'; Outlook Negative

Publication date: 13-Jan-2012 16:38:19 EST



  • Standard & Poor's is lowering its unsolicited long-term sovereign credit rating on the Republic of France to 'AA+'. At the same time, we are affirming our unsolicited short-term sovereign credit rating on France at 'A-1+'.
  • The downgrade reflects our opinion of the impact of deepening political, financial, and monetary problems within the eurozone, with which France is closely integrated.
  • The outlook on the long-term rating is negative.
FRANKFURT (Standard & Poor's) Jan. 13, 2012--Standard & Poor's Ratings 
Services said today that it lowered the unsolicited long-term sovereign credit 
rating on the Republic of France to 'AA+' from 'AAA'. At the same time, we 
affirmed the unsolicited short-term sovereign credit rating at 'A-1+'. We also 
removed the ratings from CreditWatch with negative implications, where they 
were placed on Dec. 5, 2011. The outlook on the long-term rating is negative. 

Our transfer and convertibility (T&C) assessment for France, as for all 
European Economic and Monetary Union (eurozone) members, is 'AAA', reflecting 
Standard & Poor's view that the likelihood of the European Central Bank 
restricting nonsovereign access to foreign currency needed for debt service is 
extremely low. This reflects the full and open access to foreign currency that 
holders of euro currently enjoy and which we expect to remain the case in the 
foreseeable future.

The downgrade reflects our opinion of the impact of deepening political, 
financial, and monetary problems within the eurozone.

The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements 
from policymakers lead us to believe that the agreement reached has not 
produced a breakthrough of sufficient size and scope to fully address the 
eurozone's financial problems. In our opinion, the political agreement does 
not supply sufficient additional resources or operational flexibility to 
bolster European rescue operations, or extend enough support for those 
eurozone sovereigns subjected to heightened market pressures. 

We also believe that the agreement is predicated on only a partial recognition 
of the source of the crisis: that the current financial turmoil stems 
primarily from fiscal profligacy at the periphery of the eurozone. In our 
view, however, the financial problems facing the eurozone are as much a 
consequence of rising external imbalances and divergences in competitiveness 
between the eurozone's core and the so-called "periphery." As such, we believe 
that a reform process based on a pillar of fiscal austerity alone risks 
becoming self-defeating, as domestic demand falls in line with consumers' 
rising concerns about job security and disposable incomes, eroding national 
tax revenues. 

Accordingly, in line with our published sovereign criteria, we have adjusted 
downward the political score we assign to France (see "Sovereign Government 
Rating Methodology And Assumptions," published on June 30, 2011). This is a 
reflection of our view that the effectiveness, stability, and predictability 
of European policymaking and political institutions (with which France is 
closely integrated) have not been as strong as we believe are called for by 
the severity of what we see as a broadening and deepening financial crisis in 
the eurozone.

France's ratings continue to reflect our view of its wealthy, diversified, and 
resilient economy and its highly skilled and productive labor force. Partially 
offsetting these strengths, in our view, are France's relatively high general 
government debt, as well as its labor market rigidities. We note the 
government is addressing these issues through, respectively, its budgetary 
consolidation strategy and structural reforms. 

The outlook on the long-term rating on France is negative, indicating that we 
believe that there is at least a one-in-three chance that we could lower the 
rating further in 2012 or 2013 if:

  • Its public finances deviated from the planned budgetary consolidation path. Budgetary measures announced by the French government to date may be insufficient to meet deficit targets in 2012 and 2013, should France's underlying economic growth in these years fall below the government's current forecast of 1% and 2%, respectively. If France's general government deficit were to remain close to current levels, leading to a gradual increase in the net general government debt to surpass 100% of GDP (from just above 80% currently), or if economic growth were to remain weak for an extended period, it could lead to a one-notch downgrade.
  • Heightened financing and economic risks in the eurozone were to lead to a significant increase in contingent liabilities, or to a material worsening of external financing conditions.
 
Conversely, the ratings could stabilize at current levels if the authorities 
are successful in further reducing the general government deficit in order to 
stabilize the public debt ratio in the next two to three years and in 
implementing reforms to support economic growth.

RELATED CRITERIA AND RESEARCH
All articles listed below are available on RatingsDirect on the Global Credit 
Portal.
TELECONFERENCE INFORMATION
Standard & Poor's will hold a teleconference on Saturday Jan. 14, 2012 at 3:00 
PM UK time. The teleconference can be accessed live or via replay and by phone 
or audio internet streaming

The call will begin promptly at 3:00 p.m. 

TELECONFERENCE DETAILS
Passcode: 2705831 
For security reasons, the passcode will be required to join the call. 

DIAL IN NUMBERS: 
Country        Toll Numbers            Freephone/Toll Free Number
AUSTRIA        43-1-92-80-003          0800-677-861 
BELGIUM        32-1-150-0312           0800-4-9471 
DENMARK        45-7014-0239            8088-2100 
ESTONIA                                800-011-1121       
FINLAND        106-33-149              0800-1-12771 
FRANCE         33-1-70-75-25-35        080-563-9909 
GERMANY        49-69-2222-3198         0800-101-6627 
GREECE         30-80-1-100-0674        00800-12-6609 
IRELAND        353-1-247-5274          1800-992-870 
ITALY          39-02-3601-0953         800-985-849 
LUXEMBOURG     352-27-000-1351         8002-9058 
NETHERLANDS    31-20-718-8530          0800-023-4392 
PORTUGAL                               8008-12439 
SLOVAK REPUBLIC 421-2-322-422-16           
SPAIN          34-91-414-40-78         800-098-194 
UNITED KINGDOM 44-20-7950-6551         0800-279-3590 
USA            1-210-795-1143          866-297-1588 

TELECONFERENCE REPLAY INFORMATION: 
Call notes: This call is to be recorded for Instant Replay purposes
UK TOLL #: +44-20-7108-6279
UK TOLL FREE #: 0800-376-9027

The instant replay will start at: Jan. 14, 2012 5:30pm UKT
The instant replay will end at: Feb-14-2012 11:59pm UKT

Passcode for replay: 7498
Restrictions may exist when accessing freephone/toll free numbers using a 
mobile telephone. 

AUDIO STREAMING AND AUDIO REPLAY INFORMATION: 
To join the event:
URL: https://e-meetings.verizonbusiness.com
Conference number: 1297498
Passcode: 2705831 

To access the Audio Replay of this call, all parties can:
1. Go to the URL listed above.
2. Choose Audio Streaming under Join Events.
3. Enter the conference number and passcode. (Note that if this is a recurring 
event, multiple dates may be listed.)
Replays are available for 30 days after the live event. 

This unsolicited rating(s) was initiated by Standard & Poor's. It may be based 
solely on publicly available information and may or may not involve the 
participation of the issuer. Standard & Poor's has used information from 
sources believed to be reliable based on standards established in our Credit 
Ratings Information and Data Policy but does not guarantee the accuracy, 
adequacy, or completeness of any information used.
Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.  Alternatively, call one of the following Standard & Poor's numbers: 
Client Support Europe (44) 20-7176-7176; London Press Office (44) 
20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm 
(46) 8-440-5914; or Moscow 7 (495) 783-4009.
Primary Credit Analysts:Moritz Kraemer, Frankfurt (49) 69-33-99-9249;
moritz_kraemer@standardandpoors.com
Frank Gill, London (44) 20-7176-7129;
frank_gill@standardandpoors.com
Additional Contact:Sovereign Ratings;
SovereignLondon@standardandpoors.com

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