London, 12 December 2014

Fitch Ratings has downgraded France’s Long-term foreign and local currency Issuer Default Ratings (IDR) to ‘AA’ from ‘AA+’. This resolves the Rating Watch Negative (RWN) placed on France’s ratings on 14 October 2014. The Outlooks on France’s Long-term ratings are now Stable. The issue ratings on France’s unsecured foreign and local currency bonds have also been downgraded to ‘AA’ from ‘AA+’ and removed from RWN. At the same time, Fitch has affirmed the Short-term foreign currency IDR at ‘F1+’ and the Country Ceiling at ‘AAA’.

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OVERVIEW

  • The United Kingdom has high monetary, labor, and product-market flexibility, and a wealthy and diversified economy.
  • Output and employment growth have exceeded our previous projections, but the U.K.’s fiscal position has underperformed our expectations and has yet to reflect a strengthening economy.
  • We are affirming our ‘AAA/A-1+’ long- and short-term sovereign credit ratings on the U.K.
  • The stable outlook reflects our assumptions that the U.K. fiscal position will gradually strengthen as real-wage and productivity growth improve toward pre-crisis averages, and that the government that emerges from the May 2015 general election will remain committed to fiscal consolidation.
    Our outlook also assumes the U.K.’s ongoing EU membership.

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OVERVIEW

  • We have revised our average real and nominal GDP growth projections for Italy over the 2014-2017 forecast horizon down to 0.5% and 1.2%, respectively, from 1.0% and 1.9%, as persistently low inflation and a difficult business environment continue to weigh on Italy’s economic prospects.
  • In our opinion, Italy’s weak real and nominal economic prospects have undermined public debt dynamics more than we forecast in our June 6, 2014 report. In absolute terms, we now estimate Italian general government debt will be €2.256 trillion by year-end 2017, which is €80 billion higher (or 4.9% of estimated 2014 GDP) than we forecast in June.
  • Under our criteria, such a large increase in debt, combined with consistently low growth and eroded competitiveness, are not commensurate with a ‘BBB’ rating.
  • We are therefore lowering our long- and short-term sovereign credit ratings on Italy to ‘BBB-/A-3′ from ‘BBB/A-2′.
  • The stable outlook reflects our expectation that the government will gradually implement comprehensive and potentially growth-enhancing structural and budgetary reforms, and that household balance sheets will remain strong enough to absorb further increases in public debt. We also assume the European Central Bank’s monetary policy stance will continue to support a normalization of inflation in Italy and its key eurozone trading partners.

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OVERVIEW

  • We have revised downward our assessment of Finland’s economic growth prospects, as we believe that continuing subdued external demand adds to structural economic and demographic challenges.
  • The weaker economic backdrop will further complicate efforts to consolidate public finances and reduce public debt, in our view.
  • We are therefore lowering our long-term sovereign credit ratings on the Republic of Finland to ‘AA+’ from ‘AAA’.
  • The outlook on the long-term ratings is stable.

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OVERVIEW

  • In our view, the French government’s budgetary position is deteriorating in light of France’s constrained nominal and real economic growth prospects.
  • We believe that, due to policy implementation risk related to the budgetary consolidation and structural reforms, a recovery of the French economy could prove elusive and that France’s public finances might deteriorate beyond 2014, although this is not our base-case scenario.
  • As a result, we are revising our outlook on France to negative from stable and affirming our ‘AA/A-1+’ long- and short-term sovereign credit ratings.
  • The ratings on France remain supported by our view of the French economy’s high income per capita and productivity, its diversification, and its stable financial sector.

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