Nine eurozone countries have credit ratings cut by S&P

Saturday, 14 January 2012 09:54

The European Union’s Economic Affairs commissioner Olli Rehn has criticised Standard & Poor’s (S&P) decision to downgrade the credit rating of nine countries in the eurozone.

Mr Rehn said: “I regret the inconsistent decision by Standard & Poor’s concerning the rating of several euro area member states, at a time when the euro area is taking decisive action on all fronts of its crisis response.”

S&P downgraded France and Austria from triple-A status to AA+. Italy and Portugal had their rating cut two notches, Italy’s from A to BBB+ and Portugal’s from BBB- to BB. Spain also saw its credit rating cut by two notches from AA- to A. Cyprus was also but by two notches from BBB to BB+. Both Portugal and Cyprus were given junk status.

Three other eurozone countries, Malta, Slovenia and Slovakia saw their credit rating cut by one notch.

France has retained its triple-A rating from the other two major ratings agencies, Moody’s and Fitch. Credit ratings are used by banks and investors to indicate how much money they should lend to potential borrowers.

The irony is that yields on both Italian and Spanish bonds had improved since the turn of the year, suggesting that investors and the markets had some belief that austerity measures and policies designed to solve the debt crisis in some of the worst affected countries is making progress.

The French Finance Minister, Francois Baroin said: “It is not good news but it is not a catastrophe. The United States, the world’s largest economy was downgraded over the summer, you have to be relative, you have to keep your cool. It is necessary not to frighten the French people about it,” he told France-2 television.

The decision by S&P could affect the stability of the eurozone’s own rescue fund, the European Stability Mechanism. This is funded in part by countries that have just had their credit rating downgraded, so it too could lose its triple-A rating. The effect of this would be to reduce its borrowing capability and force increases to contributions to its fund from indebted countries.

In a further negative development in the euro debt crisis talks on restructuring Greece’s debt package collapsed yesterday afternoon increasing the likelihood that Greece will become the first major country to see a full-scale default on its debt for over 60 years.

Get professional investment advice.

Follow Myfinances.co.uk on Twitter: @news_myfinances

• Tags:
• credit rating
,
• euro
,
• euro debt crisis
,
• eurozone
,
• france
,
• investments
,
• italy
,
• news
,
• spain
,
• standard and poor