Moody’s strips France of AAA-rating with one-notch cut

Moody’s stripped France of its prized triple-A badge on Tuesday, cutting the sovereign credit rating on Europe’s No 2 economy by one notch to Aa1 from Aaa, citing an uncertain fiscal outlook and deteriorating economy.

The downgrade, which follows a cut by Standard & Poor’s in January, was widely expected but is still a blow to Socialist President Francois Hollande as he strives to convince the world he can fix France’s public finances and stalled economy.

Moody’s said it was keeping a negative outlook on France due to structural challenges and a “sustained loss of competitiveness” in the country, where business leaders blame high labour charges for flagging exports.

“The first driver underlying Moody’s one-notch downgrade of France’s sovereign rating is the risk to economic growth, and therefore to the government’s finances, posed by the country’s persistent structural economic challenges,” Moody’s said.

“These include the rigidities in labour and services markets, and low levels of innovation, which continue to drive France’s gradual but sustained loss of competitiveness and the gradual erosion of its export-oriented industrial base.”

Finance Minister Pierre Moscovici told reporters the downgrade was a motivation for the 6-month-old Socialist government to pursue reforms, but he noted that even after the S&P downgrade French debt has enjoyed record low yields.