Defending his government?s economic policies, French PM Francios Fillon said his government would push ahead with reforms and debt reduction. Commenting on Standard & Poor’s decision, he said France’s downgrade of coveted AAA standard rating to AA+?was a major blow for the country but pretty?expected.
?If France was in the firing line, it was primarily because of its exposure to the crises in the eurozone. This decision constitutes an alert which should not be dramatised anymore than it should be underestimated,??Fillon said?during a news conference.
He added: ?It was not government policies that were under attack from the ratings agency and so those economic policies would be maintained with the goal of cutting spending and bringing the annual budget back into surplus by 2016.?
The Standard and Poor?s said in a statement that Europe?s austerity and budget discipline alone were not sufficient to fight the debt crises and may become self defeating. The decision was announced on Friday by the rating agency.
However, the government is waging a communication campaign to tell the French nation that there is no need to panic and that the policy reform with debt reduction will continue as planned earlier.
The downgrade of eurozone’s second biggest economy comes along with?Italy, Spain, Cyprus and Portugal who got their ratings cut two notches, with the latter two given “junk” ratings. Germany retained its prized AAA rating.
Austria, Slovakia, Slovenia and Malta were the other countries downgraded.
Many senior French politicians and other top central bankers insisted it should have been Britain instead of France to get stripped of its AAA rating. However, the rating agency came out with its verdict which went against France and also made a dismal reading for French President Nicholas Sarkozy.
WAKE UP CALL
With the downfall in credit rating by the agency, European leaders have promised for speeding up the plans to get faster bailouts. Out of the 17 eurozone countries, nine countries were downgraded by the rating agency. France, which has suffered the downgrade, was at risk of further cuts if a recession further inflates its debt and budget deficit, the credit agency warned.
German Chancellor Angela Merkel said the downgrade underlined why a so-called fiscal compact must be signed by member states quickly and next bailout session named ESM should be funded soon.
In a meeting in northern city of Kiel with conservative Christian Democrats, she said: ?We are now challenged to implement the fiscal compact even quicker and to do it resolutely not to try to soften it. We will also work particularly to implement the permanent stability mechanism, the ESM as soon as possible and this is important regarding investor trust.
Merkel, along with other European leaders, has urged top countries to tighten their belts as they will be facing higher tax rates along with deep spending cuts.
The German chancellor also added that Europe still had to go long road to restore investors’ confidence and better financial year ahead.
While France has accepted the predictable downfall, Spain was dumbstruck. Treasury Minister Cristobal Montoro said in a radio interview: ?The downgrade is far too broad, it effects too many countries, and it effects the very credibility of the euro.”
This credit ratings are being used by banks and investors to decide how much to lend money to a particular borrower from the country.
Although the downgrade move has been widely expected, it has somewhat made difficult for countries to borrow money from other countries.
However, some analysts also warned that France is not the only European powerhouse that will be facing a downgrade, as Britain could also be in hot waters soon.
Sources: BBC News, Reuters, Dailymail