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January 12, 2012

S&P Downgrades French Credit Rating

by Lisa Bryant

Standard & Poor's Friday downgraded the credit ratings of nine European countries caught up in the eurozone crisis. This includes France, which has Europe's second-largest economy.

S&P's downgrade of France's credit rating has been expected for weeks. French Finance Minister Francois Baroin called it only "half a surprise," as he confirmed on TV Friday night the downgrade from AAA to AA+. He described it as among a series of S&P credit changes across the 17-nation eurozone.

Baroin said the news was not good, but that France's credit rating remained excellent. He said the downgrade only reaffirmed the government's determination to stabilize the governance of the eurozone. France was not alone as S&P also downgraded the credit standings of eight other nations.

Baroin said it was important to stay calm and not to politicize the event. France's downgrade is clearly a blow to French President Nicolas Sarkozy, however, just a few months ahead of presidential elections. Sarkozy, who remains deeply unpopular in France, has put a premium on maintaining the country's sterling rating.

His rivals have quickly pounced on the news.

Far-right presidential contender Marine Le Pen blamed the downgrade on the French leader. She said it was critical to shelter France through what she called "reasoned protectionism."

The euro currency and markets fell at expectations over the eurozone downgrades. In another blow to the shaky eurozone, banks suspended debt restructuring talks with Greece.

Some analysts consider the downgrades a major blow ahead of the year's first European Union summit that will address a French and German plan to bring new rigor to EU economies. But Laurent Maruani, of the HEC business school in Paris, downplays the impact of the French downgrade as "nonsense." He noted that a number of other countries have seen their credit ratings slashed.

'Because people from rating agencies have no real power, no real trust that we put in them. So if everybody's degraded what can happen?  Nothing really," said Maruani.

The eurozone sovereign debt and banking crisis is now in its third year. There has also been some good news, though, with the European Central Bank recently moving to end a credit crunch at banks.