guardian.co.uk,
Larry Elliott and Phillip Inman, Friday 13 January 2012
 |
| France’s loss of its top-rated status leaves Germany as the only other major economy inside the eurozone with a AAA credit rating. Photograph: Scott E Barbour/Getty Images |
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."
The FTSE
100 dropped 100 points before recovering late in the day to finish down 26
points at 5636 while the Dow Jones in New York fell 120 points to 12350 by afternoon
trading.
S&P was
expected to blame the escalating costs of supporting indebted euro nations for
the downgrade. The vulnerability of banks in the currency club to bad loans in
Greece, Portugal and Ireland is also believed to be a key reason for the
downgrades.
The new
technocratic government in Athens added to the gloom after talks over a second
major bailout to rescue the country's finances broke up without an agreement.
Officials from the International Monetary Fund, the European Union and the ECB
arrive in Athens on Tuesday for talks on a new €130bn bailout package, which
will be impossible unless Greece first strikes a deal with the banks, insurance
companies and hedge funds that have lent it money.
The Greek
government said talks with its creditors would resume on Wednesday, but
analysts voiced concerns that hedge funds were blocking a deal that involves
them writing off 50% of their loans.
Germany
considers Greece to be the main faultline in the euro crisis and is urgently
seeking a resolution to talks over a deal, but has insisted Brussels holds out
for a private sector deal. Officials hinted on Friday night that Greece could
default on 100% of its loans if the private sector refuses to come back to the
negotiating table and accept a voluntary agreement.
A spokesman
for the troika said: "We very much hope, however, that Greece, with the
support of the euro area, will be in a position to re-engage constructively
with the private sector with a view to finalising a mutually acceptable
agreement on a voluntary debt exchange consistent with the October 26/27
agreement, in the best interest of both Greece and the euro area."
Unprecedented
action by the European Central Bank in recent weeks had reassured many
investors that policymakers were getting on top of the crisis. The ECB has lent
more than €400bn to eurozone banks to bolster their reserves and prevent a
repeat of the 2008 credit crunch.
But the
S&P downgrades are likely to undermine these efforts and make foreign banks
wary of lending to their counterparts in Europe.
Graham
Neilson, chief investment strategist at Cairn Capital, warned: "This is
just the start. There will be more to come and not just in Europe – there is
simply still too much debt and not enough growth in developed economies."
France has
already shown its anger at the prospect of a downgrade. Central Bank chief
Christian Noyer raised eyebrows in London before Christmas when he said Britain
"has more deficits, as much debt, more inflation, less growth than
us".
Related Articles:
 |
| New CEO S&P Douglas
Peterson (Former COO Citibank) |
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.