S&P Makes It Official By Downgrading Nine Eurozone Countries; Germany Spared
January 13, 2012
After a day of reports, speculation, and rumors, S&P officially announced Friday afternoon that it has downgraded the sovereign credit ratings of France, Spain, Italy, Austria, Cyprus, Malta, Portugal, Slovak Republic, and the Slovenia Republic.
Germany, which is the Eurozone’s largest and strongest economy, was not downgraded. According to S&P, Germany’s rating was kept at AAA with a “Stable” outlook.
In a statement, S&P said the rating changes were driven by the company’s assessment that the government initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the Eurozone.
The rating agency noted that the specific stresses include: tightening credit conditions; an increase in risk premiums for a widening group of Eurozone bond issuers; a simultaneous attempt of both governments and households to delever; weakening economic growth prospects, and an open and prolonged dispute among European policymakers over the proper approach to address challenges.
France and four other countries had their ratings cut by one notch, while Portugal, Italy, Spain and Cyprus were all cut by two notches.
Finland, Germany, Luxembourg, and Netherlands all were affirmed at AAA, with all but Germany maintaining a Negative outlook. Belgium and Estonia Republic were affirmed as AA with a Negative outlook while Ireland was reaffirmed at BBB+.
“It’s not a catastrophe,” French Finance Minister Francois Baroin told a French television station. Baroin reminded the interviewer that his country now has the same rating as the U.S.
The primary issue involved with the downgrade of France is the potential impact the move could have on the ability for the EFSF and ESM bailout funds to raise money in the markets.
Bloomberg commented on this issue in a report. “The French and Austrian downgrades threaten the potency of the region’s current rescue program, which currently has a capacity of 440 billion euros. The European Financial Stability Facility, which is funding rescue packages for Greece, Ireland and Portugal partially with bond sales, owes its AAA rating to guarantees from the region’s top-rated nations,” Bloomberg wrote.
Recall that France is the second largest economy in the Eurozone and has, along with Germany, taken on leadership role in the sovereign debt crisis.
Markets took the announcement largely in stride on Friday as after being down more than 130 points, the DJIA finished with a loss of just 49 points.
iShares France - Last 12 Month
iShares Germany - Last 12 Month
Introducing the Option Income Generator. This new service is designed to help tame market volatility by producing monthly income via a proprietary buy-write strategy. Check it out today!
Remember, you are in control your email alerts! You can receive alerts for more than 25 free research report alerts including: The “10.0” Report, The Insiders Report, ETF Leaders Report, and The Focus List.
