A total of 15 countries in the EU were placed on watch with negative implications
by S&P, and the agency said: “We expect to conclude our review of eurozone
sovereign ratings as soon as possible following the EU summit scheduled for
[December] 8 and 9.” It warned all of the six triple A rated governments that
their ratings could be lowered to AA+ if the creditwatch review failed to
convince its experts. Markets have been braced for a potential downgrade of France, but
few expected Germany’s top rating to be called into question.
With regard to Germany, S&P said it was worried about “the potential
impact ... of what we view as deepening political, financial and monetary
problems with the European economic and monetary union.” The agency is acting as eurozone governments make further progress towards
a comprehensive deal to contain the region’s sovereign debate crisis ahead of a crucial EU
summit on December 9. Berlin and Paris want the eurozone to
sign up to tougher fiscal rules to calm investors’ worries.
S&P told the six governments it would conclude its review “as soon as
possible” after the summit. It told governments: “[I]t is our opinion that the
lack of progress the European policymakers have so far made in controlling the
spread of the financial crisis may reflect structural weaknesses in the
decision-making process within the eurozone and European Union.”
S&P’s move at such a sensitive stage in negotiations is likely to spark
further recriminations following ongoing political criticism about the
behaviours of rating agencies during the crisis. They stand
accused by many politicians of exacerbating the crisis and are facing stringent
new regulation.
But the rating agencies are worried about who will pick up the bill for any
eurozone solution with many plans likely to increase the strain on the triple A
countries.
Governments are concerned that a downgrade will make it harder for the
eurozone bail-out fund, the European Financial Stability Facility, to arrange
financing in the markets for its rescue packages for Ireland, Portugal and
Greece, as it is underpinned by guarantees from the six nations which are rated
triple A. Those countries also fret that it could raise their own financing
costs.
Any downgrading would further
diminish the number of top-rated countries after S&P cut the US earlier this
summer, although it saw its borrowing costs fall on the move as
investors remain desperate for highly-rated paper.
