France’s credit rating downgraded by Paris-based Fitch Ratings

High levels of government debt forced Fitch Ratings to downgrade France’s credit rating on Friday to AA-plus from AAA.

The agency, based in Paris, did say that the outlook was stable.

Fitch said it now forecasts general government gross debt to peak higher at 96 percent of GDP next year and decline only gradually over the long term, remaining at 92 percent in 2017.

This compares with Fitch’s previous projections in December of 94 percent and declining more rapidly to below 90 by 2017.

“Risks to the agency’s fiscal projections lie mainly to the downside, owing to the uncertain growth outlook and the ongoing euro zone crisis, even assuming no wavering in commitment to fiscal consolidation,” the ratings agency said.

“A debt ratio that is higher for longer reduces the fiscal space to absorb further adverse shocks.”

The only AAA country with a higher debt ratio is the US (AAA/negative), but Washington “has exceptional financing flexibility and debt tolerance afforded by the preeminent global reserve currency status of the US dollar,” Fitch added.

Fitch also said France has poor prospects for growth, Agence France-Presse said.

The two other major credit agencies – Moody’s and Standard & Poor – downgraded France’s credit rating last year, AFP said.

The announcement comes as France and Germany bicker over how to best handle the banking crisis in Europe, Reuters reported.

They came out split on Friday over European Commission plans for a new agency to wind down troubled banks, with Berlin saying they go too far in centralizing control in Brussels.

German Finance Minister Wolfgang Schaeuble said proposals to curtail cross-border bank collapses do “not match the current legal, political and economic realities and would create major risks.”

His French counterpart suggested otherwise, saying the agency would be a pillar of the euro zone’s new banking union.

“Now we have to work out the details of the mechanism for resolving banking crises within the euro zone, which requires the capacity to respond quickly,” French Finance Minister Pierre Moscovici said in a statement.

The European Commission on Wednesday proposed an agency to salvage or shut troubled banks.

It would be the second of three pillars of the “banking union” meant to galvanize the response to the euro zone crisis.

With Europe's strongest economy, German support is considered crucial, but looming national elections would seem to make it unlikely until after the fall vote.

AFP contributed to this report.

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