Euro falls further on Greek contagion fears

The euro continued its downward slide Wednesday as bond rating agency Moody's said it might downgrade the credit ratings of the three largest French banks because of their exposure to the Greek debt crisis.

The euro fell 1.8 per cent to $1.4184 US late in the afternoon in New York, from $1.444 yesterday.

The drop came amid a general strike and violent protests  against austerity measures which the country must pass in order to continue receiving funding from a 110 billion euro international bailout that is rescuing it from defaulting on its debts.

The euro was also weighed down by the failure of the European Union to break a deadlock over whether to provide Greece with a second financial bailout, and by negative economic data  on the U.S. economy.

Moody's warned that BNP Paribas and Credit Agricole could face one-notch downgrades and that Societe Generale could see a two-notch decline as a result of their holdings of Greek government bonds or through their local banking subsidiaries.

Moody's warns contagion could spread

It also warned that the contagion could spread beyond France.

 "Moody's may take similar actions on other banks with direct exposures to Greece in the coming weeks," it said.

It added that it is also "closely monitoring" the risks of a Greek default scenario, including the impact on weaker countries, capital markets, and funding conditions. "Banks across the euro zone" are potentially vulnerable, Moody's said.

Societe Generale CEO Frederic Oudea had previously said a possible re-negotiation of the terms of Greek debt restructuring — where creditors end of with less than the full amount or are paid later than originally planned — "would be unpleasant but manageable" for the bank.

A spokeswoman for the bank declined to comment further Wednesday. Spokespeople for BNP Paribas and Credit Agricole didn't immediately return calls for comment.

Moody's decided earlier this month to cut Greece's own rating by three notches from a B1 rating to Caa1 with a negative outlook. It said there was an increased risk that the debt-ridden country will eventually have no choice but to restructure.