...but also France has a substantial depth now compared with their GDP.France’s AAA Rating May Be at Risk on Debt, ING Says (Update1)http://www.bloomberg.com/apps/news?pid=20601087&sid=aPIckLrGsg9A&refer=homeBy Anchalee WorrachateJan. 23 (Bloomberg) --
France’s AAA rating may be at risk as the deepening economic slump erodes tax revenue and forces the country to raise borrowing, according to ING Groep NV.
“I’m not saying France is going to be downgraded, but the level of debt puts them in a spot of danger,” Padhraic Garvey, head of investment-grade debt strategy in Amsterdam at ING, said in an interview. “Their AAA rating is under stress.”
Standard & Poor’s affirmed France’s AAA rating last week, assigning it a “stable” outlook.
The cost of economic stimulus packages amid the deepest slump in the euro area’s 10-year history is inflating budget deficits around the region, fueling concern governments will have difficulty paying their debt. S&P cut Spain’s AAA sovereign rating one step to AA+ on Jan. 19. Greece’s classification was lowered to A- from A five days earlier and Portugal’s rating was reduced to A+ from AA- on Jan. 21.
The French government increased its 2009 budget-deficit forecast for the third time in 2 1/2 months on Jan. 20 to 4.4 percent of gross domestic product, the most since 1995. The European Commission forecast it will be 5.4 percent. Public debt will rise to as high as 70 percent of GDP this year, from 67 percent in 2008, Budget Minister Eric Woerth said Jan.20.
The extra yield investors demand to hold 10-year French bonds instead of benchmark German bunds widened to 57 basis points on Jan. 21, the most since the euro’s debut a decade ago. The average spread in the past 10 years is 8 basis points. It was 55 basis points today.Shrinking Economy
The euro region’s 16-nation economy will shrink 1.9 percent this year, the first contraction since the euro’s introduction, the European Commission forecast on Jan. 19. France’s economy will contract 1.8 percent, the severest recession in six Decades, according to the commission.
The French economy “will again begin to expand once the global economic uncertainties fade,” S&P said Jan. 13. “Should the large budgetary imbalances and relatively high gross debt deteriorate over the medium term beyond our expectations, the ratings would likely come under downward pressure.”
To contact the reporters on this story: Anchalee Worrachate in London at firstname.lastname@example.org;
Last Updated: January 23, 2009 08:31 EST