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Standard and Poor's set to downgrade France's AAA rating

France is set to lose its AAA credit rating for the first time according to a number of reports, as the euro plummeted and global markets retreated amid speculation that several euro zone economies are to be downgraded by Standard and Poor's.

France downgrade 2012 01 13Enlarge
Standard & Poor's is set to strip France of its AAA credit rating for the first time, with the euro plummeting and financial markets retreating amid speculation that a number of downgrades are imminent. ( PHILIPPE HUGUEN/AFP/Getty Images)

Standard & Poor's is set to strip France of its AAA credit rating for the first time, Agence France-Presse has reported, citing an unidentified government official, according to Bloomberg and Le Monde.

The euro dropped sharply to a fresh 16-month low on Friday and global markets retreated amid mounting speculation that the US-based ratings agency was set to deliver on its threat to downgrade a number of euro zone countries due to concerns over Europe’s efforts at effectively tackling the 17-member currency bloc’s two-year debt crisis.

A senior euro zone source is reported to have told Reuters that the US-based ratings agency will downgrade the credit ratings of several euro zone countries later today, although not those of Germany or the Netherlands. 

Downgrading the euro zone’s AAA-rated economies like France could have serious implications for the capacity of Europe’s rescue fund, the European Financial Stability Fund (EFSF), to which France contributes heavily, to provide bailouts to struggling countries, according to the Associated Press.

A downgrade would be a heavy blow to French President Nicolas Sarkzoy, who is standing for re-election in April. 

The euro tumbled against the dollar, to under $1.27, as the news spread across European financial markets.

Last month Standard & Poor’s warned that it was putting 15 euro zone economies on notice for a downgrade. Since then the European Central Bank (ECB) has pumped cheap three-year loans into the banking system to try to avert a credit crunch.

ECB President Mario Draghi told a news conference yesterday that the euro zone was showing “tentative” signs of stabilization, and said that last month’s flood of cheap money was supporting confidence in the bloc’s economy. 

More from GlobalPost: ECB, holding euro rates steady, promises continued support for bloc's banks

Standard & Poor’s declined to comment on the speculation.   

According to the Guardian, tension around the financial markets was exacerbated by news that negotiations between the government of Greece and private holders of Greek debt have been suspended until next week.

More from GlobalPost: Strong demand for Spanish and Italian debt sees borrowing costs fall
 

http://www.globalpost.com/dispatch/news/business-tech/debt-crisis/120113/standard-and-poors-set-downgrade-frances-aaa-rating