Threat of France losing triple-A rating hangs over EU summit

Even as nervous French leaders try to soft-pedal the threat by ratings agency Standard & Poor's to downgrade its credit rating by two notches, all eyes are on the crucial two-day European Union summit in Brussels on Thursday.

Many fear that S&P, which on Monday warned 15 euro zone members of possible credit downgrades, might trigger off a crisis during – or immediately after – the summit by downgrading some of the leading European economies, including France.

According to S&P, France's economic forecast for 2012 was too high – despite having been lowered – and that its financial institutions were vulnerable because of their exposure to foreign debt.

''Budgetary measures announced by the French government to date may be insufficient to meet next year's budget deficit target of 4.5 per cent of GDP,'' said S&P. It also halved growth forecast for France from the government projection of one per cent.

''French financial institutions and companies are currently experiencing rising borrowing costs on their debt, which implies more complicated access to financing,'' added the agency. It estimated the external debt of French banks at 104 per cent of GDP in the current fiscal.

The agency has warned that it would go in for a mass downgrade of the ratings of several European nations including France, if there was no convincing deal at the EU summit in Brussels by Friday (See: S&P warns of mass downgrade of euro zone countries)