Chinese agency cuts France's credit rating

The cut to Europe's second biggest economy came as the region's leaders prepare for a summit in Brussels that many hope will see them agree on a plan to save the euro from collapse.

Dagong, which has little influence outside China, cut France's local and foreign currency sovereign credit rating to "A+" from "AA-" with a negative outlook, adding that a further downgrade was possible.

"We believe that the economic slowdown is worse than expected and the economy will remain sluggish over the medium term," Dagong said in a statement.

External risks to France's financial system and the rising cost of financing for the government and institutions "undermine the solvency of the French government", it added.

It is the second European country in as many days to see its credit rating reduced by the controversial Chinese firm.

Dagong on Wednesday cut Italy's rating from "A-" to "BBB" with a negative outlook due to the country's growing reliance on the European Central Bank to buy its bonds and its declining ability to repay debt.

Standard & Poor's this week placed 15 eurozone countries, including Italy, on negative credit watch – a warning of a possible imminent cut in their sovereign credit ratings, which could increase their borrowing costs.

Despite its lack of sway in international markets, Dagong has made headlines by accusing mainstream agencies Moody's, Fitch and Standard & Poor's of causing the 2008 financial crisis by not properly disclosing risk.

Chairman Guan Jianzhong, a paid adviser to China's government, insists his agency is fully independent – and stands by his tough talk about his rivals, whose ratings affect interest rates at which states and companies can borrow.