The markets already see French credit much lower. France, Europe’s second largest economy, has a perfect AAA credit rating and has a very stable economy. Yet French banks are extremely exposed to debt of peripheral countries. The credit default swaps on French bonds already reflect a much lower credit rating: Baa1.
This indeed sounds bad – that’s seven notches below the perfect rating. Last week’s warning from Moody’s about Spain hurt the Euro immediately. Also the downgrade of Irish credit by Moody’s, though expected, sent the common currency lower.
And we have also Fitch and S&P. Any word about France will have a much stronger impact.
Here’s a quote from Bloomberg:
“If problems in the euro zone aren’t solved quickly, then the conditions of refinancing will be expensive for these countries and the ratings agencies will do more downgrades,” said Ralf Ahrens, who helps manage about $20 billion as head of fixed income at Frankfurt Trust. “We already see these dynamics in the market. I see France as a risk.”
EUR/USD is currently at 1.3157, between 1.3114 and 1.3180, in a lower range than last week. For more on the Euro see, the EUR/USD outlook.