France Headed for a B Credit Rating
To add to Europe’s financial woes, France and Spain’s credit ratings have been downgraded by Moody’s and Standard and Poor’s, respectively. Neither Spain nor France – or any European country – can afford to lose consumer confidence regarding their finances, and Moody’s has also hinted at a similar decision for Austria, the Netherlands and Germany as European financial ministers are unable to reach a deal.
For any European business, remaining cautious as the debt crisis continues is proving to be increasingly important, and using risk management software can help businesses stay solvent.
Last week, Moody’s Investors Service announced that France’s uncertain short-term outlook and “structural rigidities” in the long term were reasons for the downgrade. Standard and Poor’s had already downgraded the country’s credit rating in January, and brought Spain’s credit rating down this month as well. France was classified as AA1 instead its previous rating of AAA, and Spain fell from BBB to BB+/B, according to Moody’s.
Since France’s downgrade in January, the country made changes to decrease the debt, including increasing taxes to the rich and large companies. However, the changes were not enough to sway Moody’s.
Standard and Poor’s explained Spain’s growing unemployment and shrinking economy, as well as the country’s reliance on the European Central Bank, as the reasoning behind the downgrade. With higher credit risks, the country may see more defaulting loans in the future.
Credit rating agencies and the impact they have on businesses or country economies has long been debated – according to Bloomberg, rating agencies predicted the direction of yields of government bonds about half the time in the past 40 years.
Regardless of whether the new ratings will affect France or Spain’s economy, any business dealing with European markets is likely to remain careful as the debt crisis remains unsolved. By using risk assessment tools, businesses can minimize their risky assets in the uncertain global economy