Reuters/Paris/London
Credit rating agency Standard & Poor’s could change its outlook on France’s AAA rating to negative within days, a French newspaper has reported, adding to fears France may lose its position among the top rank of sovereign borrowers.S&P declined to comment on the report, based on anonymous sources. If true, it would signal that the risk of a downgrade has risen after months of concern about the impact on French public finances of sluggish growth and the costs of the eurozone debt crisis.Economic and financial daily La Tribune said S&P – which on Friday cut Belgium’s credit rating to AA from AA+ – had planned to make an announcement on France the same day but postponed it for unknown reasons.“It could happen within a week, perhaps 10 days,” La Tribune quoted a diplomatic source as saying of a change to the outlook.The euro briefly dipped on the report, which coincided with news that another rating agency, Moody’s, could downgrade the subordinated debt of a swathe of eurozone banks, but edged up against the dollar by mid-morning.French Finance Minister Francois Baroin said the focus should not be solely on France and that while the eurozone debt crisis was serious, Paris was “clear-sighted” on it.He also ruled out a third round of budget cuts, as called for by the Organisation for Economic Co-operation and Development, which said a likely recession would drag French growth far below government targets next year.“France is not an island or economically cut off from the world. It depends on different parts of the eurozone for a large part of its economic activity and that’s why we are, to a large extent, clear-sighted on the crisis.”He said the government was sticking to its 2012 growth forecast of 1%, and said that allowed for elbow room in the budget.“However the economy evolves in the weeks ahead, we are maintaining our forecasts,” Baroin said.Bearish sentiment towards France appeared to be affecting the French public, however, with an opinion poll by Harris Interactive showing yesterday that two French people out of three would not be willing to buy French bonds to finance the public debt under current market conditions.France’s rating outlook is stable with S&P and Fitch Ratings, but Moody’s is evaluating its outlook. Months of talk that a downgrade could be on the cards is rattling the French government, which would be hit by up to 3bn euros a year in extra interest payments if its rating was cut by one notch.President Nicolas Sarkozy, who faces a tough re-election battle in April, is determined to avoid going down in history as having let France lose its cherished triple-A status.A French downgrade could also hamper the ability to borrow of the eurozone’s EFSF bailout fund, whose own triple-A rating is dependent on those of the six top-grade countries that underpin it.Last week, Fitch said France’s debt and deficit levels remained consistent with a triple-A rating but the eurozone’s No2 economy would have limited room to absorb new shocks to public finances without endangering that status.Moody’s meanwhile said yesterday it could downgrade the subordinated debt of 87 banks across 15 European Union nations on concerns that governments would be too cash-strapped to bail out holders of riskier bank debt in times of stress.Moody’s said the greatest number of ratings to be reviewed were in Spain, Italy, Austria and France.The review could lead to an average potential downgrade of subordinated debt by two notches, and junior subordinated debt and Tier 3 debt by one notch, it added.Holders of subordinated debt are further back in the queue than owners of senior debt when it comes to a claim on a bank’s assets, thus making it a riskier class of debt.“Moody’s believes that systemic support for subordinated debt in Europe is becoming ever more unpredictable, due to a combination of anticipated changes in policy and financial constraints,” the agency said in a report.Moody’s noted there had been recent instances where losses had been imposed on subordinated debt holders without any significant contagion to other liability classes.“Consequently, there would need to be very clear reasons for Moody’s to consider retaining an assumption of support in subordinated debt ratings,” it warned.Nations affected by review were listed as Austria (9 banks), Belgium (3), Cyprus (2), Finland (3), France (7), Italy (17), Luxembourg (3), Netherlands (6), Norway (five), Poland (1), Portugal (2), Slovenia (2), Spain (21), Sweden (4) and Switzerland (2).Moody’s also warned that the risk to ratings on subordinated debt could extend outside the borders of the European Union.