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S&P cuts France, holds German ratings
January 14, 2012, Saturday
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Standard and Poor's said yesterday it had downgraded France's top AAA rating by one notch to AA+, with a negative outlook, while leaving European powerhouse Germany unchanged at AAA, stable.
S&P also downgraded Italy by two notches to BBB+, negative outlook, with Spain cut two notches to A, negative outlook, as part of a major overhaul of ratings on 16 of the 17 eurozone nations, with Greece excluded.
S&P said its rating actions reflected its view that "the policy initiatives taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone."
S&P, one of the top three global ratings agencies, said it cut its long-term ratings on Cyprus, Italy, Portugal and Spain by two notches.
Austria, France, Malta, Slovakia and Slovenia were cut one notch while Belgium, Estonia, Finland, Germany, Ireland, Luxembourg and the Netherlands all had their ratings affirmed.
Overall, seven eurozone countries had their ratings confirmed while nine were downgraded.
"We affirmed the ratings on the seven eurozone sovereigns that we believe are likely to be more resilient in light of their relatively strong external positions and less leveraged public and private sectors," said S&P.
The ratings agency said the downgrade of France "...reflects our opinion of the impact of deepening political, financial, and monetary problems within the eurozone."
It said the outlook on the long-term rating on France is negative, which indicates that it believes that there is at least a one-in-three chance the rating could be lowered further in 2012 or 2013.
Failure to meet budgetary consolidation targets or growth targets of one percent this year and two percent in 2013 could spark a downgrade.
So could a heightening of financing and economic risks in the eurozone leading to an increase of France's contingent liabilities or a worsening of borrowing conditions.
S&P said Italy's downgrade "reflects what we view as Italy's increasing vulnerabilities to external financing risks and the negative implications these could have for economic growth and hence public finances."
Italy's long-term borrowing rates have stubbornly held around seven percent in recent weeks, a level economists consider unsustainable in the long run.
While Spain was having extreme difficulty cutting its public deficit, S&P highlighted "...external financing risks in the private sector, which we believe could constrain growth and hamper the government's efforts to narrow the fiscal deficit."
In December, S&P announced that it was putting the eurozone countries on review for downgrade in view of the worsening debt crisis and the failure of EU leaders to put a halt to the problems.
Greece, which has seen its ratings repeatedly downgraded since it triggered the eurozone debt crisis last year, has a rating equivalent to that of a partial default from S&P at CC with negative outlook.
S&P gave the following list of ratings and outlook changes:
Country New rating/outlook Old rating/outlook
------- ------------------ ------------------
Austria - AA+/Negative AAA/Watch Neg
Belgium - AA/Negative AA/Watch Neg
Cyprus - BB+/Negative BBB/Watch Neg
Estonia - AA-/Negative AA-/Watch Neg
Finland - AAA/Negative AAA/Watch Neg
France - AA+/Negative AAA/Watch Neg
Germany - AAA/Stable AAA/Watch Neg
Ireland - BBB+/Negative BBB+/Watch Neg
Italy - BBB+/Negative A/Watch Neg
Luxembourg - AAA/Negative AAA/Watch Neg
Malta - A-/Negative A/Watch Neg
Netherlands - AAA/Negative AAA/Watch Neg
Portugal - BB/Negative BBB-/Watch Neg
Slovakia - A/Stable A+/Watch Neg
Slovenia - A+/Negative AA-/Watch Neg
Spain - A/Negative AA-/Watch Neg
-AFP
S&P also downgraded Italy by two notches to BBB+, negative outlook, with Spain cut two notches to A, negative outlook, as part of a major overhaul of ratings on 16 of the 17 eurozone nations, with Greece excluded.
S&P said its rating actions reflected its view that "the policy initiatives taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone."
S&P, one of the top three global ratings agencies, said it cut its long-term ratings on Cyprus, Italy, Portugal and Spain by two notches.
Austria, France, Malta, Slovakia and Slovenia were cut one notch while Belgium, Estonia, Finland, Germany, Ireland, Luxembourg and the Netherlands all had their ratings affirmed.
Overall, seven eurozone countries had their ratings confirmed while nine were downgraded.
"We affirmed the ratings on the seven eurozone sovereigns that we believe are likely to be more resilient in light of their relatively strong external positions and less leveraged public and private sectors," said S&P.
The ratings agency said the downgrade of France "...reflects our opinion of the impact of deepening political, financial, and monetary problems within the eurozone."
It said the outlook on the long-term rating on France is negative, which indicates that it believes that there is at least a one-in-three chance the rating could be lowered further in 2012 or 2013.
Failure to meet budgetary consolidation targets or growth targets of one percent this year and two percent in 2013 could spark a downgrade.
So could a heightening of financing and economic risks in the eurozone leading to an increase of France's contingent liabilities or a worsening of borrowing conditions.
S&P said Italy's downgrade "reflects what we view as Italy's increasing vulnerabilities to external financing risks and the negative implications these could have for economic growth and hence public finances."
Italy's long-term borrowing rates have stubbornly held around seven percent in recent weeks, a level economists consider unsustainable in the long run.
While Spain was having extreme difficulty cutting its public deficit, S&P highlighted "...external financing risks in the private sector, which we believe could constrain growth and hamper the government's efforts to narrow the fiscal deficit."
In December, S&P announced that it was putting the eurozone countries on review for downgrade in view of the worsening debt crisis and the failure of EU leaders to put a halt to the problems.
Greece, which has seen its ratings repeatedly downgraded since it triggered the eurozone debt crisis last year, has a rating equivalent to that of a partial default from S&P at CC with negative outlook.
S&P gave the following list of ratings and outlook changes:
Country New rating/outlook Old rating/outlook
------- ------------------ ------------------
Austria - AA+/Negative AAA/Watch Neg
Belgium - AA/Negative AA/Watch Neg
Cyprus - BB+/Negative BBB/Watch Neg
Estonia - AA-/Negative AA-/Watch Neg
Finland - AAA/Negative AAA/Watch Neg
France - AA+/Negative AAA/Watch Neg
Germany - AAA/Stable AAA/Watch Neg
Ireland - BBB+/Negative BBB+/Watch Neg
Italy - BBB+/Negative A/Watch Neg
Luxembourg - AAA/Negative AAA/Watch Neg
Malta - A-/Negative A/Watch Neg
Netherlands - AAA/Negative AAA/Watch Neg
Portugal - BB/Negative BBB-/Watch Neg
Slovakia - A/Stable A+/Watch Neg
Slovenia - A+/Negative AA-/Watch Neg
Spain - A/Negative AA-/Watch Neg
-AFP
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