Bloomberg: France risks losing top grade on bailout fund

18 October 2011

Proposals to strengthen Europe's bailout fund by offering to guarantee portions of the debt owed by the region's weaker governments threaten to weaken France's top credit rating.

France’s 10-year notes are the third-worst performers this quarter -- behind only Greece and Belgium -- as traders speculate the European Financial Stability Facility will be used to insure the first portion of losses in the event of a sovereign default. France’s rating is under pressure, Moody’s Investors Service said yesterday. French bonds are being hurt as policy-makers consider using the guarantee to ensure Italy, the world’s third-largest bond issuer, and Spain can continue to access markets as contagion spreads from Greece. A downgrade of France will also limit the EFSF’s ability to hold a top grade, according to Moody’s.

Moody’s said it will monitor and assess its “stable” outlook on the nation’s debt over the next three months. In a separate statement dated today, Moody’s said that Europe’s central banks have “substantial capacity” to support lenders and sovereign debt markets. The so-called Eurosystem, headed by the European Central Bank, will continue to meet the liquidity needs of solvent euro area banks, Moody’s said.

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