Moody's warns France over credit rating

Monday 17 October 2011 23.16
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France and Germany are working to resolve differences ahead of Sunday summit
France and Germany are working to resolve differences ahead of Sunday summit
Jim Flaherty said European Banks must negotiate haircuts as big as necessary to resolve situation
Jim Flaherty said European Banks must negotiate haircuts as big as necessary to resolve situation
Greece's tough austerity measures have proved deeply unpopular
Greece's tough austerity measures have proved deeply unpopular
Protesters spend second night outside St Paul's Cathedral, London
Protesters spend second night outside St Paul's Cathedral, London

Credit ratings agency Moody's has warned it may revise to negative the outlook on France's Aaa credit rating in the next three months if the country fails to make progress on crucial fiscal and economic reforms.

“France's continued commitment to implementing the necessary economic and fiscal reform measures as well as visible progress in achieving the targeted sustainability improvements will be important for the stable outlook to be maintained,” Moody’s said.

“Over the next three months, Moody's will monitor and assess the stable outlook in terms of the government's progress in implementing these measures.”

Meanwhile, Canada’s finance minister has warned that European banks will probably have to take larger write-downs on Greek debt and must negotiate haircuts as big as necessary to resolve a very dangerous situation for the global economy.

Speaking on RTÉ’s Morning Ireland, Jim Flaherty said: "It is quite clear the Greek government is not in a position to repay the indebtedness so then it's a question of how big the haircuts are. As big as necessary.

"What is necessary is probably more than they negotiated before.

"Whatever is necessary to resolve Greece and to build a firewall around Greece because this is a very dangerous situation for the global economy," he said.

Markets were volatile today as France and Germany have less than a week to resolve key differences about a comprehensive plan to address the euro crisis.

On Sunday, European leaders will hold a summit to decide whether further losses should be imposed on bondholders of Greek debt and a plan to recapitalise banks.

Greece faces a crucial test this week with much of the country expected to be shut down by a 48-hour strike that will culminate on Thursday as parliament votes on a sweeping package of austerity measures demanded by international lenders.

Greece's two main unions, representing about half of the four million strong workforce, have promised one of the biggest strikes since the start of the crisis two years ago, hitting food and fuel supplies, disrupting transport and leaving hospitals run by skeleton staff.

Prime Minister George Papandreou has defied the protests and pledged to push through a deeply unpopular package that includes tax hikes, pay and pension cuts, job lay-offs and changes to collective pay deals.

His four-seat majority is expected to hold up with the support of smaller opposition parties, but at least two members of the ruling PASOK party could oppose part of the bill when the vote is called, probably in two stages on Wednesday and Thursday.

With European Union leaders racing to prepare a comprehensive new bailout deal in time for a meeting on 23 October, Finance Minister Evangelos Venizelos said it was the week "during which many things, maybe everything will be decided".

Trapped in deep recession and strangled by a public debt equivalent to some 162% of gross domestic product, Greece has been shut out of bond markets and would run out of money within weeks without international support.

Many economists believe Athens can no longer avoid defaulting on its debt but in a newspaper interview yesterday, Mr Papandreou said a default would be a "catastrophe" for Greece.

Inspectors from the European Union and International Monetary Fund were in Athens last week and have recommended releasing a vital €8bn aid tranche to enable the government to keep paying its bills past November.

But that will only provide temporary relief and they have urged Mr Papandreou's struggling Socialist government to push ahead with further belt-tightening.

The strike on Wednesday and Thursday will hit public sector institutions, including tax offices, state schools and airports as well as banks and businesses ranging from taxis and clothes shops to suppliers of everyday staples like bakers.

Even the country's judges will hold indefinite stoppages, only issuing rulings on major cases.

Customs officials who clear fuel refinery deliveries are holding a 24-hour strike today and will decide whether to extend their action, potentially hitting petrol supplies.

Protesters continue anti-greed demonstrations

Protesters who accuse politicians and bankers of greed and economic mismanagement have continued their action in a number of cities around the world.

There were violent street disturbances between protesters and police in the centre of Rome over the weekend, but the protests have been peaceful elsewhere.

In Frankfurt, activists set up tents to start a protest camp in front of the ECB headquarters.

In London, more than 200 activists have spent their second night outside St Paul's Cathedral.

The group had tried to take over the area in front of the nearby London Stock Exchange on Saturday.

After being thwarted by police, the group moved to the cathedral and put up 70 tents. Some said they would stay there as long as possible.