France and UK could lose AAA

CREDIT ratings agency Moody's has warned France it could lose its AAA status just weeks after rival agency Standard & Poor's cut France from triple-A to AA+.

Moody's also issued a warning to the UK and said "materially weaker growth prospects over the next few years" would put it at risk if the European economy worsened.

Meanwhile it degraded Italy, Portugal, Slovakia, Slovenia and Malta by one notch and Spain by two.

Moody's had last month said it was maintaining vigilance on France but has now decided to switch to a negative outlook while maintaining the triple-A status for the moment.

Finance Minister François Baroin said the government was "determined to press ahead with actions to boost growth and competitiveness". He said changes this included its plans to "reform the financing of welfare, of employment and the reduction of public deficits".

Moody's said debt pressures and Eurozone uncertainty were increasing the sensitivity of public finances in France. The loss of the AAA status would mean extra costs to finance French debt.

The Moody's move comes just a few days after the Cour des Comptes audit body highlighted that a reduction in France's public deficit was due to a one-off accounting change for 2010 and that public spending remained too high. It said that tougher budgetary steps were needed to cut the deficit - by whoever wins the forthcoming election.

The Moody's warning is the first time Britain has been linked to possible downgrading and the agency said: "Although the UK is outside the euro area, the high risk of further shocks (economic, financial, or political) within the currency union are exerting negative pressure on the UK's AAA rating given the country's trade and financial links with the euro area."

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