S&P threat a clarion call for reform
Source: Agencies |
December 7, 2011, Wednesday
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Print Edition
Print Edition
A THREAT by Standard & Poor's to slash credit ratings across the eurozone has sounded a clarion call which could help Nicolas Sarkozy and Angela Merkel force through a change to the European Union treaty at a summit this week.
The French president and German chancellor are determined to change European rules to impose mandatory penalties on countries that exceed deficit targets, aiming to restore market confidence and prevent a sovereign debt crisis spiraling out of control.
Citing "continuing disagreements among European policymakers on how to tackle the immediate market confidence crisis," S&P threatened to cut the credit ratings of 15 countries, including Germany and France, by 1-2 notches.
It also warned of slowing growth amid so much austerity, predicting a 40 percent chance of a fall in eurozone output. A downgrade could automatically require some funds to sell bonds of affected states.
Merkel brushed off the threat. "What a ratings agency does is its own responsibility," she said, promising that European leaders would make decisions at this week's summit that would restore confidence.
Her party's budget spokesman Norbert Barthle said: "I actually see a positive effect, because now everyone must be aware of how serious the situation is, this will help with the implementation of the proposals laid out by Chancellor Merkel and President Sarkozy to help stabilize the eurozone."
Jean-Claude Juncker, chairman of the 17 eurozone finance ministers, said he was "astonished" by S&P's announcement. He described it as "a wild exaggeration and also unfair" and said it failed to take into account a new austerity plan for Italy, which pulled borrowing costs for the biggest of the eurozone's ailing countries back from the brink.
The French president and German chancellor are determined to change European rules to impose mandatory penalties on countries that exceed deficit targets, aiming to restore market confidence and prevent a sovereign debt crisis spiraling out of control.
Citing "continuing disagreements among European policymakers on how to tackle the immediate market confidence crisis," S&P threatened to cut the credit ratings of 15 countries, including Germany and France, by 1-2 notches.
It also warned of slowing growth amid so much austerity, predicting a 40 percent chance of a fall in eurozone output. A downgrade could automatically require some funds to sell bonds of affected states.
Merkel brushed off the threat. "What a ratings agency does is its own responsibility," she said, promising that European leaders would make decisions at this week's summit that would restore confidence.
Her party's budget spokesman Norbert Barthle said: "I actually see a positive effect, because now everyone must be aware of how serious the situation is, this will help with the implementation of the proposals laid out by Chancellor Merkel and President Sarkozy to help stabilize the eurozone."
Jean-Claude Juncker, chairman of the 17 eurozone finance ministers, said he was "astonished" by S&P's announcement. He described it as "a wild exaggeration and also unfair" and said it failed to take into account a new austerity plan for Italy, which pulled borrowing costs for the biggest of the eurozone's ailing countries back from the brink.
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