S&P puts 15 eurozone nations on negative credit watch

Standard & Poor’s has put most of the eurozone’s countries on credit watch negative, meaning they risk losing their top notch rating if the ratings agency decides no remedies have been made.

The Dax was down 1.3% and the Cac 40 down 0.6% by 1045 CET on the news, which came out after European equity markets closed last night.

The move affects countries pivotal in providing financial support to indebted neighbours via the €440bn bailout fund.

Their highest rating is widely held to be important in drawing external investors to help save the eurozone.

Countries including Germany, France, the Netherlands, and Luxembourg are among the 15 nations hit by S&P’s decision.

It said: “The CreditWatch placements are prompted by our belief that systemic
stresses in the eurozone have risen in recent weeks to the extent that they
now put downward pressure on the credit standing of the eurozone as a whole.”

It said the systemic stressed were caused by five related factors. These are tightening credit conditions across the region; “markedly higher risk premiums” on a growing number of high grade eurozone sovereigns; bickering among European policy makers on how to tackle the immediate market confidence crisis and ensure greater economic, financial, and fiscal convergence among eurozone members; high levels of government and household indebtedness; and rising risk of economic recession in the bloc next year.

S&P said there was a 40% chance eurozone GDP would contract next year, with Spain, Portugal and Greece leading the way.

Its comments on lacklustre political actions reflect its commentary when it cut America’s AAA rating earlier this year as politicians fought over how to tackle the US debt mountain, and whether to raise borrowing limits.

In reviewing its decision for eurozone sovereign ratings – as soon as possible after EU leaders meet in Brussels later this week, it said – S&P will focus on three matters.

First, political dynamics in the eurozone that “appear to us to be limiting the effectiveness of efforts to resolve the market confidence crisis”; second, on borrowing needs of both eurozone governments and banks; and third, on ECB policy settings to address the economic and financial stresses.

S&P warned of one-notch downgrades in particular for Austria, Belgium, Finland, Germany, Netherlands, and Luxembourg, and by up to two notches for the other governments.

The agency also reiterated its belief Greece faced a “high near-term probability of default”, and its CC rating is unaffected.

The ratings affected are of Austria; Belgium; Finland; France; Germany; Luxembourg; Netherlands; Estonia; Ireland; Italy; Malta; Portugal; Slovak Republic; Slovenia; and Spain.

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