The downgrade in outlook to negative means that there is more than a 50 per cent probability that France's credit rating will be downgraded over a two year horizon.
The ratings agency has attributed the change in French rating outlook to the heightened risk of contingent liabilities that may emerge from the escalating Eurozone crisis. Fitch also said that France has almost run out of buffers to absorb further adverse shocks.
Besides France, Fitch has also placed Italy, Belgium, Cyprus, Spain, Slovenia and Ireland on “Rating Watch Negative Review."
This downgrade in outlook may further escalate the cost of borrowing for these countries by driving up the yields on their sovereign bonds. Higher borrowing costs will mean that they will find it more difficult to contain their burgeoning fiscal deficits.