Talks won’t save the Eurozone
S&P REGARDS POLICY INITIATIVES INSUFFICIENT TO ADDRESS SYSTEMIC STRESSES
Paris (AFP) The possibility of a break-up of the Eurozone was not a key factor in a series of ratings changes and downgrades of bloc members, i ncluding top rated France, Standard and Poor’s said on Saturday.
Asked at a conference call whether a Eurozone breakup had been considered in the decisions announced on Friday, S&P Europe sovereign ratings head Moritz Kraemer said it was “not a driving factor in any of our rating positions.”
Kraemer did not elaborate on the issue which has been a growing concern as the debt crisis, sparked by Greece in early 2010, has unfolded to claim Ireland and Portugal as victims and threaten Italy and Spain.
He noted, however, with concern the suspension of talks on Friday between Athens and its private sector bank creditors on a writedown of the Greek gover nment debt t hey hold, a key element in a second bailout of the country which many fear could default as early as March without fresh help.
Not enough
On Friday, S&P said it downgraded France’s top AAA rating by one notch to AA+, with a negative outlook, but left European powerhouse Germany unchanged at AAA, stable, reflecting its stronger economy and finances.
S& P also downgraded Italy by two notches to BBB+, negative outlook, with Spain also cut two notches to A, negative outlook as the agency, one of the top three, affirmed seven and downgraded nine Eurozone states in all.
The rating action was taken because “the policy initiatives taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the Eurozone,” it said.
Kraemer highlighted this point on Saturday, saying that the Eurozone policy response has not kept up with the developing crisis while disputes over what to do were an additional hindrance.
A key December 9 EU summit “did not lead to any breakthrough,” he said, with policymakers failing to get to grips with the true extent of the problems.
At the same time, Kraemer noted that new govern-
S&P will soon publish its judgement on the European Financial Stability Facility, the fund set up after the May 2010 bailout for Greece with the aim of taming the crisis. The agency said in December that if any of the AAA countries were downgraded, then the EFSF’S top rating would also be at risk.
ments in Italy and Spain had made great progress in stabilising their public f inances but the “European policymaking environment i s offsetting t hese gains.”
Judgement
Kraemer also said that S&P would publish “very shortly” its judgement on t he European Fi nancial Stability Facility, the fund set up after the May 2010 f i rst bail out for Greece with t he ai m of t aming the crisis.
The agency said in December when it announced the Eurozone review that if any of the AAA countries were downgraded, t hen the EFSF’S top rating would also be at risk of being cut since its financing depends largely on them.
With France and Austria both losing their AAA rating on Friday, the implication is that the EFSF will similarly be downgraded, raising fears that its financing and effectiveness could be hit.
The EU insisted on Friday that it would do everything possible to ensure that this did not happen and would look at all possible options.
S&P’S rating actions on Friday were largely as expected but still provoked an angry and determined reaction from EU leaders who argued that the agency was not giving the Eurozone due credit for all the measures being taken.