PARIS (Reuters) - France would not necessarily suffer financially if its credit rating was lowered from the current top-notch AAA grade, as U.S. experience shows, representatives of rating agency Standard & Poor’s said in an interview published on Friday.
S&P announced on December 5 that it was reviewing the ratings of France and other euro zone countries for possible downgrade and singled out France as the sole AAA-rated country that might be dropped two notches as opposed to just one.
In the interview in Le Parisien daily, S&P France president Carol Sirou and S&P’s Europe economist Jean-Michel Six said that downgrades did not have to translate into higher debt refinancing costs.
Six also suggested the financial market impact of any rating change in France’s case might be limited.
“Despite its triple-A, investors are treating France right now as if it was rated triple-B,” he was quoted as having told the newspaper. BBB is eight notches below AAA and just two notches above junk.
Six later told Reuters that he was speaking in terms of the yield premium investors demanded to hold French bonds instead of
benchmark German debt. That spread has widened to about 150 basis points for 10-year bonds from 35 bp in July but is still far smaller than the 1,150 bp spread for Portugal, which has a BBB- rating, and BBB+ Ireland’s 640 bp spread.
Six and Sirou declined to comment on the likely outcome of the rating review, rebuffed criticism of their agency and played down the impact of a downgrade on the scale they were considering
“Being downgraded is a bit like moving to 19 from 20 out of 20 in high school,” the Paris-based Six said. “It doesn’t mean you are gong to flunk your bac exam,” he said, referring to the exit test students take at the end of secondary schooling.
There was no systematic correlation between rating level and the interest rates that investors demanded for buying into debt issues by governments, said Six.
The interest rate the United States had to pay had dropped despite the fact that S&P had deprived the country of its AAA rating, and Japan continued to pay low premiums to investors despite being on a lower AA- rating, said Six.
Reporting by Brian Love and Jean-Baptiste Vey; Editing by Ruth Pitchford