Moody’s bends Eiffel Tower down

It’s France’s turn to bear the blow of economic crises in the Eurozone. After being downgraded by Standard and Poor’s in January this year, Moody’s has now downgraded the country from its AAA rating to AA1.
Needless to say, economic flailing is the cause for being brought down from the pedestal of the AAA rating, making one realise the gravity of the situation the eurozone.
The rating agency has cited structural challenges, loss of competitiveness and a doubtful fiscal outlook as the key reasons for downgrading the country’s sovereign debt rating.
What’s noteworthy is the rating agency’s recognition of the domino effect of other eurozone economies on this key player of the 17-nation bloc.
France is the second-largest eurozone economy, and the onus of responsibility for saving the other ailing economies falls partly on the ‘higher-ups’ in this country hierarchy, as Moody’s explains, “…its contingent obligations to support other euro area members have been increasing.”
Besides that, many analysts also point out that France is losing competitiveness to other eurozone economies, thanks to high labour costs and high public spending.
A commentary by Masa Serdarevic in the Financial Times says, “The threat is that the likes of Ireland, Portugal, Spain and even Greece are becoming increasingly competitive. These peripheral economies are having to take real pain on wages and labour reform now due to their respective fiscal crises. The danger is that France could find itself with the export powerhouse that is Germany to the east, newly-cheap Spain next door, and Portugal and Ireland also running circles around them.”
The rating agency has maintained the country’s negative outlook, meaning that a further downgrade cannot be ruled out.
The move casts a grave shadow over the economic strength of the eurozone, besides expectations of France’s borrowing rates going up a tad. The euro zone had been pushed into a second recession after 2009 in the third quarter this year.
All in all, sovereign downgrades, backlash by the populace over austerity in various economies and the recent recession in the bloc highlight that the move to an economically stable euro zone will not be a smooth and easy one.