Rating of France lowered by Moody’s: should we worry? – MetroNews

Blow to Bercy. Friday, September 18 evening, the rating agency Moody’s, one of the top three with Standard and Poor’s and Fitch Ratings, lowered a notch over the note of the French debt. It rose from Aa1, the second best, to Aa2, one notch below. An announcement comes at the worst time, when the government is working hard to improve the health of public finances.

For Moody’s, several factors account for this downward revision. The first is the growth in France is expected to remain low “until the end of the decade”, preventing the country to reduce its debt. The rating agency is also concerned about the unemployment rate: over one year, it grew by 0.3 points according to Insee, when most neighboring countries, Germany, UK, Italy, Portugal, Spain and others have seen them this figure down. Finally Moody’s regrets the “rigidities” of the labor market and the “institutional and political constraints” that prevent France to carry out the necessary reforms.

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A potentially higher costs for France …

Michel fir, Finance Minister reacted immediately after the announcement, assuring that “the French debt is one of the safest in the world” and that the government “remains fully committed to continue and expand its reform policy.” I must say that, like all other countries, France is closely monitoring the note attributed by rating agencies.

This figure is indeed one of the most important elements in determining the rate which the Treasury borrows money on the financial markets. The higher the score, the more successful investors willing to lend money at a low rate and on the contrary, a decline of this note runs the risk of rising interest rates.

At the Currently, the Agence France Trésor, which manages the French debt, borrow on the markets to 0.94% at 10 years. But even a small increase would have very great consequences: an increase of 0.1% increases the cost of debt, that is to say the interest to be repaid each year, more than two billion euros. It already reaching over 44 billion, it is clear that France wants to avoid stopping just over a budget already difficult to complete.

… but already incorporated by the markets.

Should we expect to see interest rates climb of France after the announcement from Moody’s? Probably not, or very little. By lowering the rating of France, the rating agency does is to align the feedback of its competitors, which have already been assigned to Paris the third best score of their scale (that home is not called but Aa2 AA).

For investors, the Moody’s decision is not surprising and has already been anticipated. France can also count on the fact that despite the deterioration of its rating, it is still better evaluated than most European countries, allowing it to benefit from better rates. Finally, Moody’s itself highlights a number of assets of France such as “diversified economy” and a demographic trend “favorable”. All elements able to reassure banks that might want to buy a share of the debt of France.

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