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Latest update: 14/01/2012
- euro - European Union - financial crisis - France
Eurozone crisis deepens after rating downgrades
The Eurozone faced further turmoil on Saturday after nine of its member states were hit with a credit rating downgrade, including France. Ratings agency Standard & Poor's criticised European leaders for not doing enough to avert the debt crisis.
By News Wires (text)
REUTERS - Standard & Poor’s hit the euro zone with a downgrade of half the countries in the single currency area, including formerly AAA-rated France, and it questioned the strategy of its political leaders for dealing with their two-year old debt crisis.
Germany, the bloc’s largest economy, was spared.
In downgrading nine of the euro zones 17 members, S&P said policymakers had not done enough to address the crisis and were even overlooking a key cause of the problem: sharp differences in economic competitiveness among countries that use the euro.
“As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues,” the agency said.
While S&P gave higher grades to the European Central Bank for sustaining market confidence through emergency lending to euro zone banks, it said political initiatives thus far “may be insufficient” to address the crisis.
The mass downgrade follows S&P’s decision last August to strip the United States of its top credit rating, a move it also chalked up, at least partly, to political stalemate—namely, lawmakers’ inability to agree on ways to cut the budget deficit.
European leaders, including Germany’s Angela Merkel, have urged countries to tighten their belts with higher taxes and deep spending cuts to rein in massive budget deficits. But that has heightened market concern about their ability to grow their way back to health, pushing borrowing costs even higher for heavily indebted governments.
“In our view, it is increasingly likely that refinancing costs for certain countries may remain elevated, that credit availability and economic growth may further decelerate and that pressure on financing conditions may persist,” S&P said.
European leaders are set to meet at a summit later this month to discuss how to boost growth and jobs.
At a summit on Dec. 9, EU leaders secured agreement on drafting a new treaty for deeper economic integration in the euro zone, but the chances for more decisive measures to stem the debt crisis remain uncertain.
France and Austria both saw their top AAA ratings cut one notch to AA-plus, while Malta, Slovakia and Slovenia also suffered one-notch downgrades.
S&P dropped the credit ratings of Italy, Portugal, Spain and Cyprus by two notches.
The agency reaffirmed the ratings on seven other euro zone countries, including Germany. But it said that of the 16 countries reviewed, all save Germany and Slovakia have negative outlooks, meaning more downgrades are possible in the next couple of years.
“Europe is going to continue to struggle and we’re going to see further downgrades and higher yields until European leaders feel that they have the political support to decide whether or not the euro zone is going to be a political union going forward or merely an economic union,” said BNY Mellon currency strategist Michael Woolfolk.
French Finance Minister Francois Baroin played down the impact of the move, saying it was “not a catastrophe”.
Friday’s decision may add to the debt problems as it is likely to increase euro zone borrowing costs across the board.
The move could trigger a series of downgrades of large European banks, companies and government entities. This could include the European Financial Stability Facility, or EFSF, the fund created to rescue troubled euro zone countries, and the European Union.
A downgrade of the EFSF could increase its borrowing costs, reducing its ability to protect the currency bloc’s weaker members.
In an interview with Reuters, John Chambers, chairman of S&P’s sovereign rating committee, said it would take further increased commitment from the remaining AAA-rated guarantors, including Germany, for the EFSF fund to retain its AAA status.
The main risks to Germany’s AAA ratings are a deterioration of its fiscal situation or problems in its financial sector, Chambers, told CNBC-TV on Friday.
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Comments (4)
Euro conditions.
It seemsd that some Euro currency members will need to embrace political assistance from other currency members. This may take the form of asking a management team to look at the internal taxation system with a view to revenue collection upgrade.
Downgrade
HAHA!
Downgrade.
Hello our leading Politicans in Europe our esteem pedigree poodles in govt,have been told what state they economy is in.Got to have a laugh,these prats are supposed to be leaders,more like obedient servants And like servants they have to stoop and accept what thier masters and owners tell them,about thier countries.Pity you not like the illiterate English.Well 80 percent anyway,broadcasters, media and masses.They always been servants,and know no other way of life ,but grovel for a few measly crumbs and leftovers from the Americans and they Ruling privileged class.For the french and europeans who are unware, England is the only illiterate peasant country left in the west.80 percent that is.
Saving the Euro
President Sarkozy will lose presidential election next April for downgrading France. Former President Carter lost election in Nov 1980 after Fed had raised interest rate. The Euro must be saved however. Only Dr. DKS can save the Euro. I suggest France rehabilitates him in order that he may run for President of France.
James Monroe
mm.fahmy@usa.com
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