French Pledge Further Reforms After Downgrade

The French prime minister, Francois Fillon, has said the loss of France's AAA credit rating had been "expected" but warned it should not be "dramatised".

France is the largest and most significant of nine eurozone members to have their credit ratings downgraded by the agency, Standard & Poor's (S&P) on Friday.

Mr Fillon pledged to make further budgetary adjustments if necessary but said that his government supported the efforts of President Nicolas Sarkozy, who is facing re-election later this year.

He said: "The president and I don't have to wait for what a credit agency decides to know what we have to do - reduce our deficits, improve our competitiveness and give the eurozone the leadership it lacks.

"We expected this decision, even though we consider it ill-timed given the efforts the eurozone is making - something investors are already recognising."

But he said that the decision changed nothing about France's growth prospects: "There is no objective reason today that allows us to revise growth."

France, which along with Austria is now rated at AA+, was also given a "negative outlook" by S&P which means there is a one-in-three chance of a further downgrade within the next year.

The decision casts fresh doubts over the effectiveness of the eurozone's bailout fund, the EFSF, whose ability to raise money to provide a safety net for troubled member states will be hampered by the downgrade of France, its second largest underwriter.

Italy, Spain and Portugal which have been at the centre of recent debt crisis turmoil each lost two points on the ratings scale.

Malta, Slovakia, Slovenia and Cyprus were also downgraded but Germany, the Netherlands, Luxembourg and Finland escaped with their AAA ratings intact.

Announcing its decision, S&P said: "The downgrade reflects our opinion of the impact of deepening political, financial, and monetary problems within the eurozone."

It also said European politicians had failed to make significant progress to end the crisis despite their planned "Fiscal Compact" - a treaty between 26 EU members that will set strict new limits on government spending and borrowing which British Prime Minister David Cameron has refused to join.

"The outcomes from the EU summit on December 9, 2011, and subsequent statements from policymakers lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems," S&P said.

The European Commissioner for the Internal Market, Michel Barnier said: "I am surprised at the moment chosen by the Standard and Poor's agency, and fundamentally of its evaluation which does not take into account recent progress."

The Cypriot government, whose rating was reduced to the "junk status" level of BB+, accused the ratings agency of high-handed behaviour that ignored the island's attempts to consolidate its finances.

Finance minister Kikis Kazamias said: "This decision can justifiably be considered arbitrary and unsubstantiated."

In August, S&P stripped the US of its AAA credit rating for the first time in its history because the deficit reduction plan passed by Congress did not go far enough to stabilise the country's debt situation.

The UK has so far clung on to its top rating but a recent report by rating agency Moody's said the eurozone debt crisis had increased the risk of a downgrade.