Fitch places EU rescue fund on rating watch negative over France worries

[Paris] Fitch ratings agency on Wednesday put the EU's 500-billion-euro bailout fund on review for a possible downgrade, triggered by concerns over France's battle to tame a ballooning budget deficit.

The agency said in a statement that it had placed a "rating watch negative" on the "AAA" score of the European Stability Mechanism - a US$650-billon fund set up during the eurozone crisis to bail out troubled countries and their banks.

The move comes a day after Fitch placed a rating watch negative on France's 'AA+' score.

A downgrade of France, the eurozone's second-largest economy and a key contributor to the ESM, would call into question the creditworthiness of the bailout fund, Fitch said.

France is battling through a deep economic crisis, with zero growth in the previous two quarters and sky-high unemployment.

Paris announced last month that next year's budget deficit - the shortfall between revenue and spending - will hit 4.3 per cent of annual economic output, well above the 3.0-per cent ceiling set by the European Union for member states.

Fitch also placed the European Financial Stability Facility (EFSF) on rating watch negative. The EFSF, rated "AA+", was created as a temporary mechanism and no longer gives out fresh loans.

"Fitch anticipates any downgrade of France would be limited to one notch; hence, the impact on ESM... and EFSF's debt issues would be of the same magnitude," it said. - AFP