Moody’s Investors Service ratings agency has issued a warning about France’s credit rating, citing that higher government borrowing costs, slower economic growth and the continued fallout from the Eurozone debt crisis could threaten the country’s sterling AAA rating.

The CAC-40 stock index of Paris has tumbled about 2.7 percent in Monday trading, in line with other major European bourses.

Elevated borrowing costs persisting for an extended period would amplify the fiscal challenges the French government faces amid a deteriorating growth outlook, with negative credit implications, Moody’s senior credit officer Alexander Kockerbeck stated.

The deterioration in debt metrics and the potential for further liabilities to emerge are exerting pressure on France's creditworthiness and the stable outlook [though not at this stage the level] of the government's AAA debt rating.”

Managing the second-largest economy in Europe, the Paris government has nonetheless embarked on a program to cut spending and raise taxes in order to get its financial house in order.

Last week, the difference in yield between French and German 10-year government bonds breached 200 basis points, a euro-era record amid increased economic and financial market uncertainty in the region, Moody's stated.

Moody’s added that while the spread between French and German borrowing costs has since slightly narrowed, France nonetheless pays nearly twice as much as Germany for long-term funding. With the government's forecast for real [gross domestic product] growth of a mere 1.0 percent in 2012, a higher interest burden will make achieving targeted fiscal deficit reduction more difficult.”

The credit agency also warned that France’s “domestic and external economic growth outlook presents significant downside risks. The French social model cannot be financed if the French economy's potential is not preserved.”

Complicating matters is the high exposure that major French banks have to the distressed debt of other Eurozone nations like Greece and Italy.

The Eurozone crisis, Moody’s indicated, will influence the value and credit quality of sovereign assets on French banks' balance sheets and affect their funding costs and capacity to lend and bolster the economy.”

Laurent Geronomi of Swiss Life Gestion told Agence France Presse that: “France no longer deserves its triple 'A' rating. The markets are going even further and wonder now when France is going to lose its triple A -- before or after the [May 2012] presidential elections.”

Frederik Ducrozet, bond strategist at Credit Agricole, told AFP: France is caught up in the contagion spiral. The government can announce all the austerity measures it likes but the country is trapped now in a vicious circle.”

French President Nicolas Sarkozy, who faces an uphill battle for re-election, has vowed he will do whatever it takes to preserve France’s AAA rating.