S&P lowers France’s sovereign credit ratings to AA

Ratings agency Standard & Poor's has lowered France's sovereign credit ratings to AA. The agency lowered the long-term foreign and local currency sovereign credit ratings one notch to AA from AA+, though, the outlook for the rating is "stable," meaning no further changes were expected

Standard & Poor's said the country's ability to get its public finances in shape and make its economy more competitive was limited.

After he assumed office in 2012, president Francois Hollande had passed a number of economic reforms including making the labour market more flexible and changing the pension system, but according to many economists the changes were too incremental to improve the situation.

According to S&P, those reforms were likely to be "insufficient to significantly unlock France's economic growth potential." There was a small rebound in growth after months of stagnation in the French economy, however real sustained growth was expected to be slow in returning.

The ratings agency added that high unemployment, which currently stood at 11.1 per cent, would make more reforms nearly impossible.

In the absence of reforms it could be difficult to significantly cut spending and according to S&P, France had already raised taxes to the maximum.

That would mean the government would have to struggle to improve its public finances, even more so as the agency expected French unemployment to remain above 10 per cent until 2016.

Meanwhile, though the European Central Bank's decision to trim it key policy rate to support the euro zones' tentative recovery was cheered by investors, the downbeat French industrial production numbers and the downgrade showed the ECB's move mattered for little against the huge hurdles faced by the region's economy.

The ECB surprised the markets with the lowering of the benchmark refinancing rate by a quarter point to 0.25 per cent.

The move came with expectations that the single currency region could ''experience a prolonged period of low inflation,'' according to European Central Bank president Mario Draghi. He denied, though that the euro zone risked slipping into a deflationary spiral.

But according to commentators, not everyone was convinced that although there were signs of life in the region's battered economies, especially in Spain, they were not strong enough to warrant optimism.