A fund raising by Europe's bailout mechanism may be put on hold because France has been downgraded by a rating agency.
The European Financial Stability Facility "might delay" its expected new three-year euro benchmark bond, one bank managing the deal confirmed.
This followed the downgrade of its second largest guarantor France.
Moody's downgraded France late last night and stripped it of its prized AAA credit rating due to concerns over its prospects for economic growth and its exposure to Europe's financial crisis.
JP Morgan, Morgan Stanley and Natixis were mandated earlier this week to lead manage the new transaction.
Market expectations had been that the issuer would open books this morning but there has not been any update so far.
One bank managing the deal said that it was only "50/50" if the transaction would go ahead on today, as it faced "technical issues".
No official communication has been sent to the market this morning.
Moody's late last night downgraded France by one notch to Aa1 from Aaa, with a negative outlook. France has a 21.83% shareholding in the EFSF, behind only Germany which has 29.07%.
France says economy sound despite Moody's downgrade
France said its economy was sound and reforms were on track after credit ratings agency Moody's stripped it of the prized triple-A badge due to an uncertain fiscal and economic outlook.
Last night's downgrade, which follows a cut by Standard & Poor's in January, was expected. But it is a blow to President Francois Hollande as he tries to fix France's finances and revive the euro zone's second largest economy.
"The rating change does not call into question the economic fundamentals of our country, the efforts undertaken by the government or our creditworthiness," Finance Minister Pierre Moscovici told a news conference today.
France, a core member of the euro zone, has been borrowing at historic low levels of around 2% for long-term bonds as investors consider it a safe haven from the turbulence in southern countries such as Greece and Spain.
Yet 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," it added.
Moscovici said last night that the downgrade was a motivation for the six-month-old Socialist government to pursue reforms, but he noted that even after the S&P downgrade French debt has enjoyed record low yields.
He also said the government was committed to meeting its target of cutting the public debt to 3% of economic output next year from an estimated 4.5% this year.
Moody's had been waiting to examine Hollande's 2013 budget and his response to a review of industrial competitiveness before adjusting its view on France as a sovereign borrower.
Standard & Poor's has rated France AA-plus, with a negative outlook, since downgrading it by one notch in January. Fitch Ratings still has France at AAA, also with a negative outlook.
The loss of its AAA rating from two agencies poses a problem for France, as investment funds often require their best assets to have at least two top notch ratings to remain in their portfolios. Any rise in borrowing costs will be painful as the French government is already battling to rein in its deficit with potentially painful cuts to public spending.
With France's €2 trillion economy teetering on the brink of recession, Hollande surprised many this month by unveiling measures to spur industrial competitiveness, chief among them the granting of €20 billion in annual tax relief to companies, equivalent to a 6% cut in labour costs.
The French government had already announced €30 billion in budget savings next year in an effort to meet its deficit goal and is working on reforms to labour laws to enable companies to hire and fire more easily with economic swings.
