Post by dait on Nov 21, 2011 12:51:58 GMT -5
Ratings agency Moody's has said a recent rise in interest rates on French government debt and weaker economic growth prospects could be negative for France's credit rating. The warning - coupled with another rise in Spanish borrowing costs - sent European stock markets lower again. Worries that France has the weakest economic fundamentals among the euro's six AAA-rated countries have drawn the euro zone's second largest economy into the firing line in the debt crisis this month.
The rating agency said the deteriorating market climate was a threat to the country's credit outlook, though not at this stage to its actual rating. "Elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications," senior credit officer Alexander Kockerbeck said in Moody's Weekly Credit Outlook. The yield differential between French and German 10-year government bonds rose above two percentage points last week, a new euro-era high. It was just under 1.7 points this morning.
Moody's said a one percentage point increase in yields roughly equates to an additional €3 billion a year of funding costs.
On October 17, Moody's said it could place France on negative outlook in the next three months if the costs for helping to bail out banks and other euro zone members overstretched its budget.
"Elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications," said senior credit officer Alexander Kockerbeck in Moody's Weekly Credit Outlook.
Spanish government borrowing costs, meanwhile, rose as the financial markets found no reason for confidence from a sweeping election win for a right-wing government committed to radical budget cuts to balance the public finances.The yield or rate of return demanded by holders of benchmark Spanish 10-year government bonds rose to just under 6.58% this evening from 6.345% at the close on Friday.
Crisis spreads to core, say Rehn and Stark ECB policymaker Jurgen Stark has warned that the euro zone debt crisis has spread from the euro zone's periphery to its core economies and is affecting economies outside of Europe. The sovereign debt crisis has re-intensified and is now spreading over to other countries including so-called core countries. This is a new phenomenon," he told the Institute of International and European Affairs in Dublin.
He added that most advanced economies were now facing serious problems with their public debt levels.Stark's warning followed similar comments from EU Economic Affairs Commissioner Olli Rehn, who said Europe's sovereign debt crisis was hitting the core of the euro zone and there should be "no illusions" about this.
Mr Rehn told a Brussels seminar this morning that Europe's economic standstill was "bound to slow down" improvements in public finances.
He said that implementing EU single market reforms would increase EU GDP by over 3 per cent by 2020.He also said that Europe must push for measures that enhance growth and have a confidence building impact in the short term.