S&P's Rogue France Message Fueled Market Angst

FOXBusiness

Even a one-word communiqué can roil global financial markets in a flash as jittery traders eye every single development with incredible intensity. Case in point: Standard & Poor’s accidental alert on France’s credit rating.

A message with the headline “Downgrade” and a link to the firm’s ratings for France was sent in error to an undisclosed number of S&P Ratings subscribers Thursday just before 10 a.m. ET. The link brought subscribers to a website that listed the factual, unchanged ratings, S&P spokesman Martin Winn said in a release issued after the incident. S&P sent a message correcting the first alert about 90 minutes later, indicating the country did indeed hold its top-notch rating.

Continue Reading Below

But the incident was enough to worry investors about possible action on France’s credit rating, adding to already heightened concerns over European bond markets. The erroneous release, which included information about various risks regarding the French banking industry, helped fuel the worst day for French government bonds in more than a decade, according to data compiled by Reuters.

“It was an unfortunate error, and it couldn’t have come at a worse time,” said Diego Iscaro, senior economist at IHS Global Insight.

It remains unclear if the alert is an indication that S&P is planning to downgrade France’s rating from its current “AAA/A-1+” with a “Stable” outlook. Winn, the S&P spokesman, said the message was caused by a “technical error.”

“I find it quite strange that the message was sent automatically and there was nothing behind it,” Iscaro said. “I wouldn’t be surprised if we hear from the S&P within the next couple of months.”

Although France does have the highest investment-grade rating possible, Moody’s Investor Services, another ratings firm, warned last month that its “Stable” outlook for France’s rating was on shaky ground, adding that future action would depend on economic and fiscal reforms in the country.

The French government initiated a second attempt at austerity measures this week as the country continues to experience slow economic growth. The European Union has called for the country to boost its efforts at trimming the debt, but French President Nicolas Sarkozy's government is convinced the latest effort at financial reform will sufficiently cut the French debt.

“France enacted a quite comprehensive austerity package, which was more than what the market expected. But if other European countries fall back into recession, which we are currently forecasting, France would look to tighten its fiscal policy even more,” Iscaro said.

“France is facing long-term finance problems, such as pension-related finances,” he added. “They addressed some of the problems, but they were not able to solve all of them.”