S&P's slash places EFSF lending at risk
Source: Agencies |
January 18, 2012, Wednesday
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Print Edition
Print Edition
RATING agency Standard & Poor's says it has downgraded the creditworthiness of the eurozone's rescue fund by one notch to AA+, putting the fund's ability to raise cheap bailout money at risk.
Monday's downgrade follows ratings cuts for AAA-rated France and Austria, whose financial guarantees were key to the creditworthiness of the European Financial Stability Facility.
If replicated by other rating agencies, S&P's move complicates the eurozone's efforts to emerge from a debt crisis that has dragged on for more than two years. It also shows how reliant states and financial firms still are on the opinion of rating agencies, despite policymakers across Europe vowing on Monday to curtail their influence.
Although the ratings cut had been expected after S&P downgraded nine euro countries on Friday, the EFSF's top official quickly moved to reassure investors.
"The downgrade to 'AA+' by only one credit agency will not reduce (the) EFSF's lending capacity of 440 billion euros (US$562.7 billion)," Klaus Regling, the fund's CEO, said in a statement. He added that the EFSF has enough money to fund the bailouts of Ireland and Portugal, as well as a second rescue for Greece that may be decided in the coming weeks.
S&P had warned in December that it would cut the rating of the EFSF in line with the downgrades of any AAA country.
Moody's and Fitch, the two other rating agencies, still have the EFSF at AAA, meaning that it would count as a top-notch investment for most funds. But analysts warn that further downgrades could follow soon.
Once another big agency cuts the EFSF's rating, the eurozone faces a stark choice. Either the fund starts issuing lower-rated bonds - and accepts higher borrowing costs - or its remaining AAA contributors boost their guarantees.
So far, Germany, the biggest of the four AAA economies in the eurozone, has ruled out boosting its commitments to the fund, and increases also appear politically difficult in the Netherlands and Finland. Luxembourg, the fourth country that S&P still awards its highest rating, is so small that its contributions have little impact.
Another option would be to accept that the EFSF can give out fewer loans.
The bonds the EFSF issues to raise bailout money are underpinned by 720 billion euros in guarantees from the 14 eurozone countries that haven't received bailouts.
Monday's downgrade follows ratings cuts for AAA-rated France and Austria, whose financial guarantees were key to the creditworthiness of the European Financial Stability Facility.
If replicated by other rating agencies, S&P's move complicates the eurozone's efforts to emerge from a debt crisis that has dragged on for more than two years. It also shows how reliant states and financial firms still are on the opinion of rating agencies, despite policymakers across Europe vowing on Monday to curtail their influence.
Although the ratings cut had been expected after S&P downgraded nine euro countries on Friday, the EFSF's top official quickly moved to reassure investors.
"The downgrade to 'AA+' by only one credit agency will not reduce (the) EFSF's lending capacity of 440 billion euros (US$562.7 billion)," Klaus Regling, the fund's CEO, said in a statement. He added that the EFSF has enough money to fund the bailouts of Ireland and Portugal, as well as a second rescue for Greece that may be decided in the coming weeks.
S&P had warned in December that it would cut the rating of the EFSF in line with the downgrades of any AAA country.
Moody's and Fitch, the two other rating agencies, still have the EFSF at AAA, meaning that it would count as a top-notch investment for most funds. But analysts warn that further downgrades could follow soon.
Once another big agency cuts the EFSF's rating, the eurozone faces a stark choice. Either the fund starts issuing lower-rated bonds - and accepts higher borrowing costs - or its remaining AAA contributors boost their guarantees.
So far, Germany, the biggest of the four AAA economies in the eurozone, has ruled out boosting its commitments to the fund, and increases also appear politically difficult in the Netherlands and Finland. Luxembourg, the fourth country that S&P still awards its highest rating, is so small that its contributions have little impact.
Another option would be to accept that the EFSF can give out fewer loans.
The bonds the EFSF issues to raise bailout money are underpinned by 720 billion euros in guarantees from the 14 eurozone countries that haven't received bailouts.
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