It appears only a matter of time now before members of the “big three” credit ratings agencies pounce on yet another economic power in the form of a credit rating cut, as problems stemming from the “PIIGS Nations” continue to grow and spread throughout Europe.
On Monday, Moody’s Investment Services put France on notice that it is endanger of losing its long-held AAA sovereign credit rating on concerns that aren’t so much based on its own situation, but those of rising borrowing costs/bond yield activity tied to collateral damage from problems in other high debt European nations. It is the second time this year Moody’s has released a public warning about France, which along with Germany has been forced to carry the load for a cluster of debtor nations, most recently the third-largest economy on the continent (Italy). All of this could affect the new bailout fund for struggling European nations and continue to have a domino effect through the economy and credit markets.
France got a previous downgrade scare earlier in November in what was later chalked up as an “error” by Standard & Poor’s. S&P had released notice to a group of subscribers that France’s top credit rating was to be cut but, soon after, offered a mea culpa chalking it up to a “technical error” and a reaffirmation of the nation’s top status. Still, how a full statement on a downgrade to one of the best-rated nations on the planet was readied and released could have been a mere tech glitch became fodder for intense speculation in the weeks that followed.
Still, the warnings and the premature downgrade classification, all are leading to an increasingly likely conclusion that the French will have to deal with a ratings cut in the coming days, weeks or months. And, given its importance in helping steer the stabilization of the stumbling euro situation, it could have a much more dramatic impact in real terms than did S&P’s bold downgrade of the United States this summer.
Brian Shappell, NACM staff writer