–Downplays Rating Downgrade of Societe Generale, Credit Agricole

PARIS (MNI) – ECB Governing Council member Christian Noyer
reiterated Wednesday that Greece has the capacity to meet the deficit
targets set down in its bailout program, and he downplayed the latest
credit downgrade early Wednesday of leading French banks Societe
Generale and Credit Agricole.

The best solution for Greece’s debt problems is not default or debt
rescheduling but rather “to do everything so Greece respects the program
it is committed to,” the governor of the Bank of France said in a radio
interview.

“It can do it!” Noyer insisted, deploying once again the argument
that since the IMF and the European Union, with all their experience in
dealing with such problems, constructed the bailout strategy, it must
therefore be feasible.

“It is in everyone’s interest that Greece continue on this path —
and first of all in its own interest,” he said. While the task is
“enormous”, Athens “must make all the necessary efforts” to regain
fiscal health, he said.

Noyer was sanguine about this morning’s news that rating agency
Moody’s Investors Service had knocked Societe Generale down a notch to
Aa3 from Aa3, and its sister bank Credit Agricole to Aa2 from Aa1.
Moody’s did not downgrade the third leading French bank, BNP Paribas,
but left it under review for a possible downgrade.

For Noyer, the Moody’s downgrades, which were widely expected in
financial markets, are “relatively good news,” since they are “very
limited” in scope and merely bring the banks’ credit standing into line
with other French and European banks.

Indeed, Noyer said it was “excellent” that Moody’s had judged the
French banks fully equipped to manage all potential losses from a
sovereign debt default.

Because French banks have expanded their capital base by E50
billion since the onset of the crisis, “they do not need fresh money” to
deal with their commitments, he argued, though he encouraged them to
continue fortifying their defensive position.

Noyer noted that the exposure of French banks to Greek debt,
totaling about E8 billion, was less than the E11 billion in profits they
had registered in the first half of this year. Thus, they would remain
solvent even in the “most frightening” scenario of a Greek default, he
reasoned.

The plunge in bank sector stock prices in past days was “very
excessive” and there is “no reason for it to continue,” Noyer declared,
dismissing as “surrealistic” the remedy of nationalizing the banks.

As for France’s fiscal consolidation strategy, the central bank
governor said that the government’s official forecast for GDP growth of
1.75% next year was “probably correct” but that it was “a bit too early”
to know for sure. As a precaution, the government should be ready adopt
supplementary measures to meet its deficit target of 4.5% of GDP, he
said.

France, like economies everywhere, is in “a phase of slowing
growth,” Noyer noted. However, “the worst is never certain.”

–Paris newsroom +331 4271 5540; email: ssandelius@marketnews.com

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