After receiving a recent credit warning from ratings agency Standard & Poor’s, the chairman of the French Central Bank has said the UK should be downgraded first because it has a weaker economy.
The S&P’s downgrade warning joins similar threats from rival ratings firm Moody’s, which has said that the eurozone crisis has put each state in the bloc at risk of financial downturn. Moody’s has announced that it will begin reconsidering credit ratings for the entire eurozone, including AAA-rated France and Germany, in January 2012.
The onslaught of credit warnings elicited objections from Christian Noyer, head of the French central bank. Noyer said that France’s downgrade would be unjustified, especially considering that Britain is not a candidate for the credit chopping block. He told a French newspaper that Britain has “more deficits, as much debt, more inflation, less growth” than France, and therefore any European credit downgrades should begin in the UK.
The remarks against the country’s creditworthiness echo the recent stressed relations between France and the UK, which vetoed changes to the EU’s Lisbon Treaty at last week’s summit in Brussels.
France and Germany took the lead in proposing a treaty that would bring closer economic integration to the European Union, while the UK blocked the move, saying it was not in the country’s best interests. Noyer has also said that ratings agencies are hurting “the positive feeling” that markets reflected on the day of the Brussels summit.
Britain’s refusal to comply with the new EU fiscal standards has brought about much attention and response from both sides. French Minister Francois Baroin took a jab at the UK in the French parliament, saying that Cameron’s veto was an “audacious choice” considering his country’s “very difficult economic situation.”
Baroin went on to say that the UK has a comparable deficit to Greece’s as well as “much higher inflation prospects and growth prospects well under the eurozone average.”
In response to the derision from Noyer and Baroin, the British government has said that the UK is not identified as a credit risk because it has a detailed plan to deal with its deficit. Additionally, it is well into its credible five-year austerity drive to balance budgets.
The loss of its top AAA credit rating would have serious ramifications for France, as its government’s borrowing costs would increase.