Standard & Poor’s rating agency has downgraded the sterling AAA credit rating of Europe's second-largest economy, France to AA+. The rumors of a possible downgrade have been circulating since the end of the year.
A number of other countries have also been downgraded by the rating agency. The eurozone’s leading economy Germany has not been downgraded, even though it was one of the 15 eurozone countries put on a credit watch negative list by S&P in December. At the time, the agency said it was due to their increased credit risk.The euro has been falling over a month-long period, losing over 3 per cent against the dollar since December 13.Talks about a downgrade of EU countries has caused nervousness throughout European and international markets, often outweighing attempts by EU leaders to put a positive spin on the economy.Analysts say France’s downgrade has been expected because of the country’s extensive involvement in the European Central bank, as well as its role in bailing out Greece and Portugal. The ECB has made massive money injections to European economies in recent months. On Thursday, the ECB President said the strategy of battling Europe's debt crisis is starting to work.The move could weaken the country’s ability to borrow. France needs to find another 400 billion euro (US$506 billion) to stay afloat, covering its repayments of existing debt, interest owed and new borrowing. An extra 1 per cent would cost French taxpayers 4 billion euro a year.