Friday 13th..Downgraded..Cyprus,Italy,Portugal,Spain,Austria,France,Malta,Slovakia and Slovenia
Europe has been plunged into a fresh crisis after France admitted it had been stripped of its coveted AAA rating in a mass downgrade of nine eurozone countries by the credit ratings agency S&P.
The agency downgraded the ratings of Cyprus, Italy, Portugal and Spain by two notches. It also lowered Austria, France, Malta, Slovakia and Slovenia by one notch.
The agency said that its actions on eurozone ratings were “primarily driven by insufficient policy measures by EU leaders to fully address systemic stresses”.
Ahead of the announcement share prices plunged, the euro dropped to a 16-month low against the dollar and the European Central Bank was forced to step in to buy Italian bonds after European sources admitted action by the credit ratings agencies was imminent.
Bringing an abrupt end to the uneasy calm that has existed in the eurozone since the turn of the year, the heavily-trailed S&P move rekindled financial market anxiety about a Greek default and possible break-up of the single currency.
Nicolas Sarkozy was due to go on national TV to explain the humiliating loss of France’s top-rated status, leaving Germany as the only other major economy inside the eurozone with a AAA rating. French finance minister François Baroin downplayed the move, saying it was “not a catastrophe”.
The moves followed a warning from S&P last month that it was looking hard at the credit ratings of 15 of the eurozone’s 17 members. Germany and the Netherlands were quick to make it clear they were not on the list of targeted countries circulated by S&P to European capitals ahead of an announcement that was expected to be made after the close of business on Wall Street. Investors piled into safe haven assets such as the dollar, while the UK was rewarded with even lower borrowing costs as 10-year bonds slipped below 2%.
Britain is not at imminent risk of a downgrade, but Berlin sought to soften the blow to French pride when a senior German politician close to Angela Merkel said the UK should have been first in line for a cut in its AAA status on the grounds that its collective private and public sector debts are the largest in Europe.
Michael Fuchs, deputy leader of the Christian Democrats, said: “This step is out of order. Standard and Poor’s must stop playing politics. Why doesn’t it act on the highly indebted United States or highly indebted Britain?”
He added: “If the agency downgrades France, it should also downgrade Britain in order to be consistent.”
It had all been going so well for the euro before the curse of Friday the 13th struck. Spain and Italy had held successful bond auctions, the Greeks were holding fruitful talks with their creditors, the pressure from the financial markets was abating. There were the first whispers, with fingers firmly crossed, that a turning point had been reached in the crisis that has blighted the single currency for the last two years.
But around lunchtime rumours surfaced that the ratings agency S&P had chosen this singularly inappropriate moment to detonate the bomb that has been waiting to go off for the past five weeks – a debt downgrade of eurozone countries. The fact that the story was datelined Berlin was significant: this was a German source leaking the fact that Europe‘s most powerful economy was not on the list of shame.
France, though, has lost its coveted AAA status, leaving the state of play in the Anglo-French war of the rating agencies as David Cameron 1 Nicolas Sarkozy 0. The concerted attempts by the French establishment to persuade S&P, Moody’s and Fitch that Britain was more deserving of a downgrade have fallen on deaf ears. France will be inconvenienced by having its debt status reduced by one notch but the real effects will be psychological and political.
For Sarkozy, months away from a presidential election, the news that France is being downgraded but Germany and the UK will remain AAA is nothing short of disastrous. Cameron should not be too smug, though. If, as looks entirely plausible, the UK economy is going backwards it will only be a matter of time before the rating agencies contemplate a downgrade on this side of the Channel.
There will, of course, be economic consequences of the S&P decision – most, if not all, of them deleterious. Europe’s bailout fund for troubled single currency countries, the European Financial Stability Facility, relied on the AAA status of France for its own top-notch rating. The French downgrade means an EFSF downgrade, which will make it more difficult and more expensive to raise funds from financial markets and sovereign wealth funds.
france loses it AAA..but now says its not important..of course..you lost it..it cant be important..SandP are saying what we all know..they are basket cases..debt is not cancelled by more debt..it just gets bigger..duh?
UK is laughing its head off..all the way to the .. bank..
~ by seeker401 on January 15, 2012.