Ratings agency Standard & Poor’s (S&P) has announced that it has downgraded France’s credit rating this evening.
A government official reportedly told French news agency AFP that France will lose its triple-A credit rating. it's rating has been cut to AA+. France was one of 15 eurozone countries to be put on “credit watch” by S&P in December because of the level of their debts and the lack of progress in securing a solution to the euro debt crisis.
This now means that Germany is the only large European country in the eurozone to retain its triple-A rating.
The loss of France of its credit rating will put pressure on the functionality and security of the eurozone’s bailout fund, the European Financial Stability Facility (EFSF) because it will hinder its effectiveness to arrange funding for aid packages for Greece, Ireland and Portugal.
The rumours earlier in the day sent the markets into a spin with the FTSE 100, German Dax and French Cac indexes all falling sharply in mid-afternoon before rebounding to close slightly down on the day. The Euro was down against the dollar, trading at 1.2679 at 16.30 pm GMT today.
Meanwhile talks on restructuring Greece’s debt package collapsed this afternoon increasing the likelihood that Greece will become the first major country to see a full-scale default on its debt for over 60 years.
Negotiators acting on behalf of holders of Greek government bonds said that the meeting did not result in a satisfactory response from all parties. It seems likely that a conclusion from the International Monetary Fund (IMF) that bondholder losses need to be increased or that a second Greek bailout will have to be larger than the €130 billion agreed.
Investors are at odds with the Greek government on how to reach a new agreement on revaluing the debt.
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