Open

Coming up

Don't miss

Replay


LATEST SHOWS

IN THE PAPERS

The Socialist rebellion grows

Read more

BUSINESS DAILY

Can Weibo win over US investors?

Read more

DEBATE

Algeria: What's the Choice? Incumbent Bouteflika Votes in Wheelchair (part 2)

Read more

DEBATE

Algeria: What's the Choice? Incumbent Bouteflika Votes in Wheelchair

Read more

AFRICA NEWS

Virunga Park chief shot

Read more

MEDIAWATCH

Algerian election: Bouteflika votes in wheelchair

Read more

MEDIAWATCH

Algeria's media: a mixture of censorship and free speech

Read more

WEB NEWS

Nigerian web users call for end to violence

Read more

FOCUS

Bitcoin in the US: A monetary revolution?

Read more

  • Captain not at helm when ship listed, South Korean officials say

    Read more

  • Nobel-winning Colombian writer Gabriel Garcia Marquez dies at 87

    Read more

  • With a strong French presence, veterans and fresh faces, Cannes aims to please

    Read more

  • Low turnout reported in Algeria as Bouteflika seeks fourth term

    Read more

  • Astronomers discover Earth-like planet that could support life

    Read more

  • Russia and West agree on steps to ease Ukraine crisis

    Read more

  • Mob launches deadly attack on UN shelter for S. Sudan civilians

    Read more

  • Eurostar train mishap causes 'severe' delays

    Read more

  • Chelsea Clinton announces she's pregnant

    Read more

  • French troops free five aid workers kidnapped in Mali by Islamists

    Read more

  • In pictures: Iranian woman pardons son’s killer at the gallows

    Read more

  • After cup defeat, Spanish pundits read last rites for Barcelona

    Read more

  • India heads to polls in single largest day of voting

    Read more

  • Ukraine talks open in Geneva as Putin talks tough on TV

    Read more

  • Pro-Russian separatists killed in attack on Black Sea base

    Read more

  • Man executed in Texas for 2002 triple murder

    Read more

  • Scandal-hit French doctor Jacques Servier dies at 92

    Read more

  • Belgian head of wildlife reserve shot in DR Congo

    Read more

  • Crunch talks on Ukraine begin in Geneva

    Read more

  • Stagehand of God? Maradona's legendary goal inspires a play

    Read more

  • US rolls out red carpet for French critic of capitalism

    Read more

  • N. Korea not amused by London hair salon's Kim Jong-un ad

    Read more

  • Real Madrid beat old foes Barcelona to lift Copa del Rey

    Read more

  • France's new PM targets welfare in drive to cut spending

    Read more

  • Campaigning against Bouteflika's re-election... in France

    Read more

Business

S&P downgrades eurozone bailout fund to AA+

©

Text by News Wires

Latest update : 2012-01-17

Standard & Poor's rating agency downgraded the EFSF eurozone bailout fund to AA+ on Monday. The fund's CEO, Klaus Regling, sought to reassure markets by saying the downgrade would not reduce lending capacity.

AP - Rating agency Standard & Poor’s said Monday it has downgraded the creditworthiness of the eurozone’s rescue fund by one notch to AA+, putting the fund’s ability to raise cheap bailout money at risk.

The downgrade follows ratings cuts for AAA-rated France and Austria, whose financial guarantees were key to the creditworthiness of the European Financial Stability Facility.

“The downgrade to ‘AA+’ by only one credit agency will not reduce (the) EFSF’s lending capacity of EUR 440 billion,” Klaus Regling, the fund’s chief executive officer, said in a statement.

S&P had warned in December that it would cut the rating of the EUR 440 billion EFSF in line with the downgrades of any AAA country.

Moody’s and Fitch, the other big two rating agencies, still have the EFSF at AAA, meaning that it would count as a top-notch investment for most funds. But analysts warn that further downgrades are likely soon.

Once another big agency cuts the EFSF’s rating, the eurozone faces a stark choice. Either the fund starts issuing lower-rated bonds - and accepts higher borrowing costs - or its remaining AAA contributors increase their guarantees.

So far, Germany, the biggest of the four AAA economies in the eurozone, has ruled out boosting its commitments to the fund, and increases also appear politically difficult in the Netherlands and Finland.

Another option would be to accept that the EFSF can give out fewer loans.
Because of the EFSF’s strange setup the bonds it issues to raise bailout
money are underpinned by some EUR 720 billion in guarantees from the 14 eurozone countries that haven’t received bailouts. But for issuing AAA-rated bonds, only AAA-guarantees count, taking the fund’s lending capacity down to EUR 440 billion.

With the downgrades of France and Austria, the EFSF loses some EUR 180 billion in AAA-guarantees, leaving it with a loan capacity of EUR 260 billion. Of that, around EUR 40 billion have already been committed to the bailouts of Ireland and Portugal, and a new Greek rescue will quickly take more than ¤100 billion out of the till.

While that leaves the eurozone with a severely diminished firewall, the lower lending capacity may not matter that much. To rescue Italy and Spain, the EFSF would need more than EUR 1 trillion, according to analysts, and whether the shortfall is EUR 900 billion or EUR 600 billion won’t make much of a difference.

 

Date created : 2012-01-16

  • DIPLOMACY

    Sarkozy heads to Spain for talks following downgrade

    Read more

  • FINANCE

    How S&P’s downgrade will impact France

    Read more

  • EUROZONE

    Standard and Poor's downgrades French credit rating

    Read more

Comments

COMMENT(S)