There was some welcome relief for France today as Moody's said it would not follow Standard & Poor's in stripping the country of its AAA credit rating – at least for now. But it warned that should the economy worsen or Europe's debt crisis deteriorate, the rating could come under pressure.
Meanwhile the President of the European Council Herman Van Rompuy has called on leaders to develop an "anti-recession strategy" and "refocus on growth and job creation" at their summit in Brussels on January 30.
Moody's – which has been assessing its stable outlook on France's rating since October – was the second of the big three agencies, after Fitch, to maintain the country's top-notch status in the wake of S&P's decision to downgrade. But Moody's warned that "adverse economic or financial market developments" including a "further deterioration in the European debt crisis" would call the rating into question.
It said progress in achieving economic stability would be "important for the stable outlook to be maintained". The French government plans to reduce its deficit to 3 per cent of gross domestic product by 2013, down from 7.1 per cent in 2010. Today Sarkozy was due to meet Spanish Prime Minster Mariano Rajoy, whose country was also among nine in the eurozone – including formerly AAA rated Austria – to be downgraded by S&P on Friday
Describing the timing of S&P's decision as "very odd", European Commission spokesman Olivier Bailly said that the rating agencies did not have the full information on which to base their decision. "We have more information that the rating agencies and we think there are elements missing in their analysis," he said. "We have monthly updates from member states. We share this information on a confidential basis."
Van Rompuy, during a visit to Italy – which like Spain suffered a two-notch downgrade by S&P – said financial stability would "not be reached overnight" and there was "no quick fix" to Europe's problems". He called for a "sustained committed effort" throughout the European Union. "Market players or rating agencies sometimes consider our response as incomplete or insufficient. Yet real progress has been made in reshaping the euro area, in order to build on its fundamentals, which are on average sound."
He reiterated that leaders would agree the new fiscal compact treaty by the end of January, and look at ways to increase the size of the bail-out funds. But, he said: "In the meantime we should refocus on growth and job creation. Growth friendly consolidation and job friendly growth are what we need. Growth should be enhanced by strengthening supply and by stimulating demand. We must urgently put in place an anti-recession strategy."
France's downgrade by S&P hit President Nicolas Sarkozy's hopes of re-election in the spring. The latest poll by Ifop for Paris Match
magazine showed his socialist rival Francois Hollande on 27 per cent, ahead of Sarkozy on 23.5 per cent. Still more worrying for Sarkozy was that far-right National Front leader Marine Le Pen – whose policy is to exit the euro – had narrowed the gap between herself and the president to just two points.