Moody's warns France with possible debt downgrade
German Chancellor Angela Merkel speaks with French President Nicolas Sarkozy after a meeting of the Group of Eight in L'Aquila, in central Italy.
Jeremy Hobson: While European leaders try and reach a deal to rescue the eurozone by the end of this week, Moody's has made things a little more
challenging. The ratings agency is warning it may place the golden AAA credit rating of France in position for a downgrade.
For more we go to reporter Christopher Werth who joins us now from the Marketplace European desk in London. Good morning.
Christopher Werth: Hey, good morning.
Hobson: So Chris, France is one of the eurozone's biggest, and maybe you could say strongest economies. Why has Moody's issued this warning?
Werth: Well, I'm glad you said the word "warning," because this isn't a downgrade -- yet. It's a warning. And it all has to do with this big European bailout that's being hammered out this week in Europe.
The issue is what to do with Greek debt. Any solution to this eurozone debt crisis is going to involve writing down a good share of that bad Greek debt -- and that's going to have a negative impact on the banks that hold it.
I spoke with Philip White at the Center for European Reform, and he says to a large part, Moody's warning is based on the fact that French banks will take a big hit in this.
Philip White: French banks have large exposures not just to Greece, but also to Spain and Italy. So, and of course the numbers for Spain and Italy are much larger than they are for Greece.
Hobson: So French banks have a problem here. Chris, how important is a ratings agency like Moody's as Europe deals with this debt crisis?
Werth: Well, Jeremy, the opinion of ratings agencies is going to be very important in all this, because it's the ratings agencies that these countries have to please in the end. So a ratings agency stepping up with a warning like this will certainly give the French the incentive to mold the outline of this deal in the country's favor. Any kind of a negative warning or downgrade will raise borrowing costs, and that's the last thing these European countries want.
Hobson: Christopher Werth, in London. Thanks, Christopher.
Werth: Hey, thanks.