One of the key concerns with regard to the host of plans to fight the European debt crisis being considered by EU leaders is the possibility of debt downgrades by the rating agencies. The thinking is that if the individual states are asked to contribute more cash to the EFSF or the ESM, or if either fund is leveraged via the ECB, more borrowing would ensue, which would put pressure on the ratings of the countries involved.
France has been a major concern as a downgrade of the country’s sovereign debt rating would also jeopardize the rating of the EFSF as well as the cost to the French to contribute.
Recall that on Tuesday, Moody’s had warned of a change in France’s debt rating outlook, saying that the French government’s financial strength had weakened due to the crisis.
The Moody’s report stated, "The deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook of the government's Aaa debt rating."
Moody's notes that the French government now has less room for maneuver in terms if stretching its balance sheet than it had in 2008. France's continued commitment to implementing the necessary economic and fiscal reform measures as well as visible progress in achieving the targeted sustainability improvements will be important for the stable outlook to be maintained.
However, Reuters is reporting Friday morning that according to Fitch, the rating agency has no plans to downgrade France’s sovereign debt rating.
Fitch says that if a Greek default is part of the comprehensive plan to the European debt crisis, France is likely to benefit.
The company also said that the outcome of the EU summit is not likely to trigger a review of the ratings of either Italy or Spain.
Fitch also suggested that the intensity of the crisis is likely to generate a recession in Europe.
The Fitch report has been well received by the markets, with European stocks and U.S. futures moving higher in response.
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