*S&P lowers French credit rating a notch

Also losing its AAA rating is Austria - and other downgrades could be imminent for Italy, Spain, and Portugal. Germany will keep its AAA rating. Reaction on Wall Street was pretty restrained (the Dow was down 48 points), perhaps because the decision was so inevitable. France now has a credit rating of AA+. From the WSJ:

S&P's decision means the rescue fund, the European Financial Stability Facility, could lose the triple-A rating it needs to borrow cheaply and lend to ailing euro-zone governments. As France is the second-biggest contributor to the fund's guarantees, the chances are greater that the EFSF's capacity will be crimped or its borrowing costs will rise. France and Austria are still rated triple-A by two ratings firms. It isn't clear how the EFSF will proceed with the split verdict. But if France and Austria are deemed banished from the triple-A club, the sum of triple-A guarantees falls from €451 billion to €271 billion, more than three-quarters of which comes from Germany. Finland, the Netherlands and Luxembourg also have Triple-A ratings.

Meanwhile, talks over Greece's debt restructuring have broken down, which means that a full-scale default is looking quite likely. From the FT:

In a statement, lead negotiators for Greek bondholders said that the latest offer made by Athens "has not produced a constructive consolidated response" from "all parties" - a clear reference to a hardline stance taken by some international lenders that private investors shoulder even more losses. The International Monetary Fund, in particular, has concluded that bondholder losses must be increased significantly, or a second Greek bail-out would have to be bigger than the €130bn agreed in October.

*Update: Whoa - S&P has just cut ratings on eight other euro-zone countries, including Italy, Spain and Portugal. It placed a negative outlook on all but two of the 16 euro-zone nations.