PARIS: Moody’s ratings agency downgraded two top French banks, highlighting the risk of a eurozone domino effect amid warnings the crisis could destroy the European Union.
Moody’s cut the rating for Credit Agricole bank, one of the biggest in Europe, from Aa1 to Aa2 and Societe Generale’s from Aa2 to Aa3 because of fears over their exposure to Greek sovereign debt.
The rating agency left French banking major BNP Paribas on negative watch.
Despite the downgrade, shares in Credit Agricole rose by 3.22 per cent by midday on Wednesday, while shares in Societe Generale and in BNP Paribas fell by 3.27 per cent and 1.96 per cent, respectively.
Shares in all three banks have plummeted in recent weeks amid turmoil over the eurozone debt crisis on a mix of concerns over their exposure to Greek debt, but also to debt in other eurozone countries, notably Italy.
The banks, the French central bank and the government have assured that French banks are strong enough to withstand any pressures which could arise from the debt crisis.
Analysts at CM-CIC Securities said in a note: “The European situation is getting more complicated every day. There are more and more signs that Greek default could happen much more quickly than expected, perhaps in October.”
However, Aurel BGC trader Dov Adjedj said that investors had anticipated Wednesday’s downgrades.
“The Moody’s downgrade is not so severe and it was in any case largely expected since a few days,” he said.
Commerzbank analysts, commenting on overall sentiment on financial markets, said: “The question of whether or not Greece will default is pretty much solved for the financial markets though. From the point of view of the markets a short-term default of Greece is more or less unavoidable.
“As a result, the forex market is more interested in the consequences of a default and as a result above all the question whether there is a risk of contagion effects for other countries.”
Polish Finance Minister Jacek Rostowski, whose country holds the rotating EU presidency, told the European Parliament in Strasbourg that “Europe is in danger.”
“If the eurozone breaks up, the European Union will not be able to survive, with all the consequences that one can imagine,” he said of the currency bloc that comprises 17 of the 27 EU countries.
European Commission head Jose Manuel Barroso described the crisis as “the most serious challenge of a generation. This is a fight... for the economic and political future of Europe.”
Moody’s warned in June that it was looking at French banks with a view to possible downgrade because of their exposure to the Greek financial crisis and the risks of contagion, and the markets had largely anticipated the downgrade.
German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou are to discuss the Greek emergency at a teleconference scheduled for Wednesday.
The teleconference was decided in view of informal talks between EU finance ministers and central bankers in Wroclaw on Friday and Saturday.
Merkel fought on Tuesday to soothe alarm on markets over Greece, saying everything would be done to avoid an “uncontrolled insolvency” and stressing that the eurozone would remain intact.
US Treasury Secretary Timothy Geithner is to attend exceptionally Friday’s meeting of EU finance ministers and central bankers.
The emerging economies of Brazil, Russia, India, China and South Africa, which constitute the BRICS group, are to discuss possible aid to Europe to ease the crisis, Brazilian Finance Minister Guido Mantega said.
He and his counterparts are to discuss the issue in Washington on Sept 22. They will be in the US capital next week for the annual meetings of the International Monetary Fund and World Bank.—AFP