Standard & Poor's cut France's sovereign credit rating on Friday by one notch to AA from AA+, giving a thumbs-down to President Francois Hollande's efforts to put the euro zone's second largest economy back on track.
All three major rating agencies had already stripped France of its top-grade triple-A status. S&P is the first to downgrade it for a second time, warning that the economic reforms of the past year were not sufficient to lift growth.
"We believe the French government's reforms to taxation, as well as to product, services, and labor markets, will not substantially raise France's medium-term growth prospects," S&P said in a statement.
"Ongoing high unemployment is weakening support for further significant fiscal and structural policy measures," it added.
The ratings agency adjusted its outlook for French debt to stable from negative, citing Hollande's commitment to containing net general debt, which it expects to peak at 86 percent of output in 2015.
French OAT futures were 18 ticks lower at 134.41 after the move. Finance Minister Pierre Moscovici insisted his country's debt remained among the safest and most liquid in the world and challenged what he said were "inaccurate criticisms" of the French economy.
"They are underestimating France's ability to reform, to pull itself up," he told France Info radio.
"During the last 18 months the government has implemented major reforms aimed at improving the French economic situation, restoring its public finances and its competitiveness."
Shares in French banks also fell at the market opening.
Ratings agency Fitch last week upgraded the outlook on Spain's credit rating, pointing to a convergence between France - typically considered a core euro zone member - and Spain, usually described as a peripheral state.
Hollande's Socialist-led government has enacted a modest reform of France's rigid labor market and a review of its generous pension system aimed at narrowing funding shortfalls.
But the latter reform in particular was less than expected by the European Commission, which this year urged Paris to make structural reforms in return for giving it an extra two years to bring its public deficit within EU targets.
The downgrade applies to France's long-term foreign and local currency debt ratings. S&P said the probability of a further rating action on France over the next two years was less than one in three.
Philippe Waechter, head of economic research at Natixis Asset Management, said the downgraded reflected views that the French government was not implementing reforms needed to repair its economy.
But, he said: "I don't think there will be a dramatic impact on French debt in the short term, because S&P is not expressing alarm and the outlook is stable."