Moody's warns of fresh downgrade if French reforms stall

Moody's warns of fresh downgrade if French reforms stall

Credit ratings agency Moody's, which stripped France of its AAA rating, would downgrade its creditworthiness further if the Socialist government fails to implement announced reforms, its lead France analyst said on Tuesday.

"We would downgrade the rating further in the event of an additional material deterioration in France's economic prospects or in a scenario in which there were difficulties in implementing the announced reforms," Dietmar Hornung, Moody's lead analyst for France's sovereign rating, told Reuters.

Moody's cut France to Aa1 with a negative outlook on Monday, citing structural economic challenges and a sustained loss of competitiveness in Europe's second-largest economy.

Hornung said France also remains vulnerable to external shocks from the euro zone crisis, particularly given the strong links between its economy and financial sector and those in troubled southern European countries.

"If there are substantial economic and financial shocks from the euro area debt crisis, that would also exert downward pressure on France's rating."

Hornung said France's 2013 budget, which included 30 billion euros in deficit-cutting measures, and a competitiveness pact unveiled this month aimed at reducing companies labour costs were "significant steps".

He said these had helped to limit the size of Moody's downgrade to just one notch, from Aaa to Aa1.

"We still think the 2013 budget and the medium-term budget plan is based on too optimistic growth assumptions," Hornung said.

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