The criticism came from the International Nonprofit Credit Rating
Agency, or Incra, a pilot project intended to show the feasibility of a
nonprofit agency that would provide an alternative to the three main
ratings agencies: Moody’s, Standard & Poor’s and
Fitch Ratings.
Those agencies have come under fire for failing to warn of the financial
crisis and overlooking huge risks in the debt market, including loans
for subprime real estate as well as the Greek government’s debt pile.
The agencies usually get their funding from the creditors whose debt
they assess. In the case of sovereign debt, the agencies have been
accused of timidity for fear of provoking officials whose governments
would probably have to pay higher borrowing costs.
French officials played down the Moody’s decision, issued late Monday,
and sought to blame the country’s previous rightist governments for the
economic challenges.
“This rating change doesn’t call into question either our economic
fundamentals or the reforms engaged in by the government, nor the high
standard of our credit,” Finance Minister Pierre Moscovici said at a
news conference.
The downgrade, he added, “is punishment for the situation we have
inherited, which hasn’t stopped deteriorating for 10 years.”
President François Hollande, a Socialist, took office in May. For the
previous decade, France was led by Jacques Chirac and Nicolas Sarkozy,
both from the right.
Incra is an attempt by the Bertelsmann Foundation, financed by a German
media conglomerate, to show how a ratings agency could be structured
without the potential conflicts of interest the commercial agencies
face.
The European Commission has stepped up regulation of ratings agencies
while also requiring banks and bond funds to take more responsibility
for analyzing the creditworthiness of the governments and companies they
invest in. There has also been talk of creating a European credit
ratings agency.
Annette Heuser, executive director of the Bertelsmann Foundation in
Washington, said the organization hoped that the Group of 20 countries,
which have also expressed concern about the current debt rating system,
would take the lead in creating a nonprofit ratings agency.
“We need an international solution that brings in the emerging economies,” Ms. Heuser said.
It was the first report on France by Incra, so there were no previous
ratings to compare to. The agency gave France a score of 7.9 out of 10,
or AA+. Incra had given Germany a rating of 8.1, or AAA–; and 7.2 for
Italy, or AA–.
On Tuesday, Incra also rated Brazil, which received a score of 6.8, or
A+; and Japan, which received a score of 6.0, or A–, because of its high
debt and stagnant economy.
Incra cited what it said was France’s slow growth, heavily regulated
labor market and a pension system that could become unaffordable over
time. France could also be required to help pay for the bailout of other
euro zone countries as well as its own banks, Incra said.
Moody’s cited some of the same factors in its decision to downgrade
France. But Ms. Heuser said that Incra’s methodology looked not only at
economic data but also at indicators of how well society functions,
including the efficiency of the court system and the level of
corruption.
“Even if we come to a similar conclusion, the underlying analysis is completely different,” Ms. Heuser said.
She said that Incra also believed that the French educational system had been declining, which hurt the country’s score.
In its decision to downgrade French debt, Moody’s cited a worse outlook
for government finances as a result of France’s fading competitiveness
and “the longstanding rigidities of its labor, goods and service
markets.” It also warned that the country’s resilience to shocks from
the euro crisis was declining. At the same time, Moody’s said, France
faces greater fiscal obligations from developments including the
bailouts of other euro zone countries.
Moody’s decision came as no surprise, as Standard & Poor’s had
stripped France of its triple-A rating in January. The French economy
has stagnated for most of this year, growing just 0.2 percent in the
third quarter from the second quarter. The euro zone as a whole has
fallen back into recession.
Fitch still rates France as AAA, and Mr. Moscovici pointed out that
investors had largely ignored the S.&P. downgrade: the country’s
borrowing costs remain near record lows.
The United States, which lost its triple-A rating from S.&P. in
August 2011, has also been able to borrow at historically low rates.
David Jolly reported from Paris.
