S&P Downgrades Ratings of Nine Euro Nations

Mattias Sobolewski and Dina Kyriakidou of Reuters reported today that nine Euro nations have had their debt downgraded by S&P:

"Today's rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone," Standard and Poors, the U.S.-based ratings agency said in a statement.Ratings changes:

Italy (down two notches)
Spain (down two notches)
Portugal (down two notches – to "junk" status)
Cyprus (down two notches)
France (down one notch – no longer AAA)
Austria (down one notch)
Malta (down one notch)
Slovakia (down one notch)
Slovenia (down one notch)

Additionally, 14 nations received a "negative outlook" hinting at a possible further downgrade, including France, Austria, Finland (itself still triple A), the Netherlands and Luxembourg.

Only Germany remained AAA with a "stable outlook."

Greece

Negotiators for Greece have often voiced confidence in a deal for which private creditors would writedown 50 percent of the face value of their Greek bond holdings, but the European credit downgrades make them less hopeful. The other side of the negotiations is represented by the Institute for International Finance, which is negotiating on behalf of the banks holding Greek debt. The ultimate effective interest rate after negotiations is complicated by hedge funds, some of which have bought up Greek debt and want to be paid in full or trigger default insurance.

The national credit downgrades and complications of Greek debt negotiation have terminate the good feeling earlier in the week that was coming from Spain and Italy being able to rollover large debts at lower borrowing costs.

The European Financial Stability Facility

Reuters reports:

"S&P said the euro zone faced stresses, including tightening credit conditions, rising risk premiums for a growing number of sovereigns, simultaneous deleveraging by governments and households, and weakening economic growth prospects.

"It also cited political obstacles to a solution to the crisis due to "an open and prolonged dispute among European policymakers over the proper approach to address challenges."

"Austerity and budget discipline alone were not sufficient to fight the debt crisis and risked becoming self-defeating, the ratings agency said."The French and Austrian national banks are exposed to the debt of peripheral euro-zone countries as well as Hungary. France itself is the second-largest guarantor of the European Financial Stability Facility (EFSF), which itself has an AAA rating. John Chambers, as chairman of Standard and Poor’s sovereign rating committee, said preserving the EFSF rating of AAA would require the four guarantors still rated AAA to increase their commitments to EFSF. This could be very difficult, as German, Finnish and Netherlands voters have resisted ending more support to Euro lending.

French Politics

French President Sarkozy had been vowing for months to preserve France’s AAA rating. Now, he is having significant political problems of his own, since his centrist opponent, Francois Bayrou, and Socialist opponent, Martine Aubry, are blaming him and his party for the S&P downgrade of their country.

Summarized from:

http://news.yahoo.com/mass-p-downgrade-greek-debt-impasse-hit-euro-013534484.html