EU criticises Standard & Poor's ratings downgrade

 
Traders work on the floor of the New York Stock Exchange on January 13, 2012 in New York City. Stocks fell on Friday as downgrade rumours reached trading floors

The EU's top economic official has criticised a decision by Standard and Poor's to downgrade the credit ratings of nine eurozone countries.

Economic affairs commissioner Olli Rehn said the move was "inconsistent" as the eurozone was taking "decisive action" to end the debt crisis.

Other senior European officials have also hit out the move.

The downgrade - which included stripping France of its top AAA rating - was announced on Friday.

Italy, Spain, Cyprus and Portugal were cut two notches, with the latter two given "junk" ratings. Germany kept its AAA rating.

Austria, Slovakia, Slovenia and Malta were the other countries downgraded.

Standard and Poor's criticised the bloc's response to the crisis, saying austerity and budget discipline alone were not sufficient to fight it, and risked becoming self-defeating.

'Keep your cool'

Mr Rehn said he "regrets'" the decision taken by S&P's, saying the euro area has taken "decisive action in all fronts of its crisis response'' and was making progress in calming financial markets.

Analysis

Standard and Poor's say that austerity alone risks becoming self-defeating. For several countries like Portugal, Italy, Spain, the danger is that spending cuts will throw already weak economies into recession. The ratings agency judgement seems based on the fear that some countries risk being drawn into a cycle of decline.

Italy - with debts of 120% of GDP - is now on the same level as Kazakhstan. Portugal has been relegated to junk status.

Eurozone finance ministers responded jointly by saying in a statement they had taken "far-reaching measures" in response to the sovereign debt crisis and were accelerating reforms towards stronger economic union.

It was a bad day for the eurozone made worse by a near breakdown of crucial talks in Greece. The country is negotiating over a second bail-out package. Without it the country will default in March.

"It is now important to finalise as soon as possible the features and practicalities of the European Stability Mechanism and... to advance its entry into force to July," he said.

The European Stability Mechanism is the eurozone's permanent rescue fund.

French Finance Minister Francois Baroin said the loss of the triple-A rating was "not a catastrophe'' and stressed that France still had a solid AA+ rating.

"The United States, the world's largest economy, was downgraded over the summer,'' he said on France-2 television. "You have to be relative, you have keep your cool. It's necessary not to frighten the French people about it.''

Eurogroup President Jean-Claude Juncker said eurozone countries are determined to do "whatever it takes'' to return to growth.

Meanwhile, talks aimed at negotiating a restructuring of Greece's debts broke down on Friday, raising fears once again of a possible default.

Stocks fell on Friday as downgrade rumours reached trading floors in Europe and the US.

Start Quote

The downgrades increase the dependence of the big banks on finance from the ECB - and for the economic recovery of the eurozone, that's a very bad thing”

End Quote

The Dow Jones industrial average in New York was down 0.5%. Stocks fell 0.6% in Germany, 0.5% in Britain and 0.1 in France.

Earlier on Friday, the euro hit a new 16-month low against the dollar amid speculation ahead of the move, before rebounding.

Bailout fund

On Friday, S&P's said France was being downgraded one notch, to AA+. The country still has a top AAA rating from the other two main ratings agencies, Moody's and Fitch.

Austria, like France has lost its top AAA rating, and been downgraded to AA+. Its economy exports a lot to recession-struck Italy, while its banks are facing losses on subsidiaries they own in financially troubled Hungary.

S&P's rating of Italy - currently at the epicentre of the crisis - has been cut two notches from A to BBB+.

Crisis jargon buster
Use the dropdown for easy-to-understand explanations of key financial terms:
AAA-rating
The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule.

Spain was also cut two notches from AA- to A, as was Portugal, whose rating fell from BBB- to a "junk" rating of BB - indicating a very high level of risk for lenders.

Apart from Germany and lower-rated Slovakia, all the other countries being reviewed were given a "negative outlook", meaning there is a 30% chance of a further downgrade.

Credit ratings are used by banks and investors to decide how much money to lend to particular borrowers.

The cut in the so-called sovereign ratings of governments is likely to lead to most other borrowers domiciled in the same countries - including banks and companies - being downgraded.

Although the move has been widely expected, it is still likely to make it somewhat more difficult and expensive for borrowers from those countries to raise money, including for the governments themselves.

Country Old Rating New Rating Cut

Austria

AAA

AA+

One notch, loses top rating

Belgium

AA

AA

None

Cyprus

BBB

BB+

Two notches to junk

Estonia

AA-

AA-

None

Finland

AAA

AAA

None

France

AAA

AA+

One notch, loses top rating

Germany

AAA

AAA

None

Ireland

BBB+

BBB+

None

Italy

A

BBB+

Two notches

Luxembourg

AAA

AAA

None

Malta

A

A-

One notch

Netherlands

AAA

AAA

None

Portugal

BBB-

BB

Two notches to junk

Slovakia

A+

A

One notch

Slovenia

AA-

A+

One notch

Spain

AA-

A

Two notches

 

More on This Story

Global Economy

The BBC is not responsible for the content of external Internet sites

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    +9

    Comment number 412.

    If you live in the Eurozone like I do and see whats going on whith the political jumble, yoiu would understand why S&P has downgraded us, The French & German ministers have there heads in the sand, all they are doing is trying to bye time for there banks and save their own political necks, heads of state all I see is a load of backsides & sand

  • rate this
    +7

    Comment number 390.

    I would be cautious if I were the German government. The export markets are drying up at an alarming rate. The U.K. is already down and so are France, Italy and Spain. It actually means the German economy will fall and it is just around the corner. The elections in France in 4 months time will be a turning point with an acrimonious divorce initiated by a new socialist presidency.

  • rate this
    +8

    Comment number 383.

    Do the credit rating agencies really carry much credibility following their complete failure to predict the global financial collapse? Or does the story get coverage because it is a juicy story for the media?

  • rate this
    +4

    Comment number 379.

    Let us cut to the truth here.

    We are broke.

    France and many of the EU countires are as broke if not broke-er.

    Don't know about Germany, possibly not doing as well as portrayed.

    Why does any sane person with some commonsense need a ratings agency to tell us this.

    Read for yourself, assess the information for validity/reliability and the make up your own mind.

  • rate this
    -8

    Comment number 356.

    Reasons why the UK should be DOWNGRADED:
    - record debt, unemployment, inflation, declining standard of living
    - all major banks including the RBS have already been downgraded
    - the banking sector shrinks as jobs are lost because of cancelled
    risky investment banking
    - no impressive rebound of the UK economy is forecast
    - Brazil has overtaken the UK as 5th largest world economy
    A SCANDAL.

 

Comments 5 of 18

 

More Europe stories

RSS

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.