S&P Warns 15 Eurozone Nations of Possible Downgrade

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Europe Update: S&P Puts Eurozone Nations on “CreditWatch Negative”

As had been projected by the WSJ and FT, S&P has placed the long-term sovereign ratings on 15 members of the Eurozone on CreditWatch negative with negative implications. Such a move is generally accepted to mean that there is a 50% chance of a downgrade in the next 90 days.

S&P cited 5 reasons for the move:

• Tightening credit conditions across the Eurozone
  
• Markedly higher risk premiums on a growing number of Eurozone sovereigns, including some that are currently rated 'AAA'
  
• Continuing disagreements among European policy makers on how to tackle the immediate market confidence crisis and, longer term, how to ensure greater economic, financial, and fiscal convergence among Eurozone members
  
• High levels of government and household indebtedness across a large area of the Eurozone
  
• The rising risk of economic recession in the Eurozone as a whole in 2012.

S&P also state that it expects economic output to fall next year in countries such as Spain, Portugal and Greece and sees a 40% probability of a fall in output for the Eurozone as a whole.

Of the 17 Eurozone countries, Cyprus was already on watch negative, while Greece has not been placed on CreditWatch

The move by S&P was cited by analysts as the primary factor for the stock market seeing its rally stop abruptly around 1:35 pm eastern when the FT and WSJ broke the story.

 

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