Fitch’s Maintains French AAA rating

Ratings agency Fitch’s continues to break ranks with the other leading ratings agencies, Moody’s and Standard and Poor’s in maintain that France should hold onto its AAA credit rating. The rating means that investment in the country’s debt vehicles is the highest quality investment possible – well, at least in Fitch’s view. However, Fitch’s has placed France on a negative outlook which means that in their view, the rating could edge downwards in the foreseeable future (usually, this means a two-year window). Standard and Poor’s took away France’s AAA rating in January and Moody’s followed suit in November.

It is the function of a ratings agency to evaluate the risk associated with a given investment. A triple A rating is the highest standard of an investment grade vehicle with the lowest level (still remaining investment grade) being BBB according to Fitch’s and Standard and Poor’s or Baa3 by Moody’s. Anything below these grades is traditionally regarded as “junk” but that does not imply that it is worthless, merely a more speculative investment.

If a nation’s credit rating falls, it can push up the cost of borrowing which is why Greece, Ireland Portugal and Cyprus needed to get IMF/EU bailout funding since the rates of return on investment demanded by the market had become prohibitively expensive.

The Socialist government of France under President Francois Hollande has eschewed the austerity programmes adopted by many members of the European Union. The French hope that they can spend and tax their way back to growth – the top level of tax for France’s wealthiest citizens is now 75%. In contrast to many of her partner states, France has even re-established retirement at 60 for certain groups of workers.

At the moment, only Germany, Canada and the UK enjoy a AAA rating from all three of the major agencies.