Relief for France as Moody's retains Triple A rating

Moody's rating agency says France will keep its triple-A credit rating but said it was still reviewing whether it would maintain its "stable" outlook for the debt-laden country. Fitch, the third major ratings agency, has also kept France at its top level and said it has no plans to review it this year. 

Reuters/Mike Segar

Moody’s announcement comes three days after rival agency Standard and Poor's downgraded France's top rating by one notch, in what is seen as a severe blow to President Nicolas Sarkozy's re-election prospects.

Moody's said in mid-October it would take three months to consider whether France should be downgraded.

It warned that a rise in the borrowing rate on French debt bonds and slowing growth could have a negative effect on France's rating.

European stock markets stabilised on Monday after opening slightly down but the true test of the effect of France's humiliating downgrade will come on Thursday, when it conducts its first large-scale bond auction as an S&P AA+ economy.

France will try to sell between 7.5 billion and 9.5 billion euros in bonds, with maturities of between two and 28 years, and markets will be keen to see how much interest Paris will have to pay to find buyers.

If Sarkozy's government finds itself saddled with high yields in the wake of its downgrade it will call into question the credibility of his deficit reduction plan and plunge the eurozone into further turmoil.

European leaders are due to meet on 30 January to agree a new fiscal pact to oordinate deficit reduction programmes and attempt to reassure the bond markets that they are on top of the sovereign debt crisis.

Meanwhile, a top IMF official warned the eurozone faced a "downward spiral" in the wake of a batch of stinging credit downgrades,

IMF First Deputy Managing Director David Lipton warned Asian finance and banking chiefs, meeting in Hong Kong, of trouble ahead, saying Europe could be swept into a cycle of collapsing confidence, stagnant growth and fewer jobs.

“In today's interconnected global economy, no country and no region would be immune from that catastrophe,” he said.