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Monday, 5 December 2011

Standard & Poor's threatens to downgrade fifteen Euro-zone countries within 90 days.

Tonight there has been unpleasant news from S&P about the credit ratings of  fifteen of the Euro-zone countries, with among others Germany, France and Spain.

Standard & Poor's Ratings Services today placed its long-term sovereign ratings on 15 members of the European Economic and Monetary Union (EMU or eurozone) on CreditWatch with negative implications.

We have also maintained the CreditWatch negative status of our long-term rating on Cyprus and placed its short-term ratings on CreditWatch with negative implications. The ratings on Greece have not been placed on CreditWatch. The ratings on the eurozone sovereigns are listed below.

Today's 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.

We believe that these systemic stresses stem from five interrelated factors:

(1) Tightening credit conditions across the eurozone;

(2) Markedly higher risk premiums on a growing number of eurozone sovereigns,including some that are currently rated 'AAA';

(3) Continuing disagreements among European policy makers on how to tackle the immediate market confidence crisis and, longer term, how to ensure greater economic, financial, and fiscal convergence among eurozone members;

(4) High levels of government and household indebtedness across a large area of the eurozone; and

(5) The rising risk of economic recession in the eurozone as a whole in 2012.
Currently, we expect output to decline next year in countries such as Spain,
Portugal and Greece, but we now assign a 40% probability of a fall in output
for the eurozone as a whole.

We expect to conclude our review of eurozone sovereign ratings as soon as
possible following the EU summit scheduled for Dec. 8 and 9, 2011. Depending on the score changes, if any, that our rating committees agree are appropriate for each sovereign, we believe that ratings could be lowered by up to one notch for Austria, Belgium, Finland, Germany, Netherlands, and Luxembourg, and by up to two notches for the other governments. 

This is hardly surprising. I can imagine that ‘the usual suspects’ in Europe (a.o. Merkozy and PM Mark Rutte of The Netherlands) will cry blue murder about the rating agencies. But you could see this coming from 25 lightyears away. 

Especially reason (3) is something that the government leaders should really be ashamed about.

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