France handed financial warning

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France handed financial warning

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Moody’s has put France in the economic firing line. The credit rating agency has warned a rise on government debt and weaker growth prospects could be negative for the outlook on the country’s credit rating.

Worries that France has the weakest economic fundamentals among the euro’s six AAA-rated countries have put the euro zone’s second largest economy into the financial front line raising concerns over its credit outlook.

“I think it would be unwise to comment on this warning at the moment, three months before the final Moody’s rating of France. Based on the actual situation of France I don’t think it is appropriate to threaten a possible downgrading of France,” said

Jean-Claude Juncker, Eurogroup head

The risk premiums on French, Spanish and Italian bonds – the cost to the government of borrowing money – rose as investors fled to safe-haven German Bonds. France is paying almost twice as much as Germany. Borrowing costs for both Spain and Italy hit levels regarded as unsustainable last week.

In Spain, where the outgoing socialist government became the fifth in the 17 nation single currency to be toppled by the debt crisis this year, Mariano Rajoy’s election victory provided little tonic.

Despite the fact his centre right government will be committed to tougher austerity bond yields rose again to 6.5 per cent.

They may get some respite if the new government can act quickly to shore-up investor confidence. “We need to hear a plan from Spain,” stressed one trader.