The Fire Next Time: The Euro Financial Crisis – S&P downgrades debt of 9 countries

Posted by AzBlueMeanie:

Ratings agency Standard & Poor’s downgraded the government debt of France, Austria, Italy and Spain by one notch, Only Germany maintained the coveted ‘AAA’ level. S&P downgrades ratings on France, Italy, Spain, Austria 1 notch; Germany keeps AAA rating – The Washington Post:

The cuts, which eliminated France and Austria’s triple-A status, deal a heavy blow to the currency union’s ability to fight off a worsening debt crisis. In total, S&P cut its ratings on nine eurozone countries.

Italy was lowered by two notches to BBB+ from A, and Spain fell to A from AA-. Portugal and Cyprus also dropped two notches. The agency also cut ratings on Malta, Slovakia and Slovenia.

The downgrades come as crucial talks on cutting Greece’s massive debt pile appeared close to collapse Friday.

More from the New York Times, France Loses AAA Credit Rating, S.&P. Says:

The actions . . . were the strongest signal yet that Europe’s sovereign debt woes were far from over and would pose fresh political challenges for politicians, including President Nicolas Sarkozy of France, as they try to stabilize the problem on the Continent, now in its third year.

A downgrade by a single ratings agency like Standard & Poor’s could have an immediate, though not devastating, impact on the countries’ ability to borrow money.

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Rumors of imminent downgrades trickled out all day Friday, the end of a week in which Prime Minister Mario Monti of Italy and Mr. Sarkozy warned that the crisis could deepen if steps were not taken to stoke growth. Both delivered their messages to Chancellor Angela Merkel in her offices in Berlin, prompting the German leader to admit for the first time that the harsh program of austerity she has been pushing on the euro zone was not a cure-all for the crisis.

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A downgrade would make it costlier for each country to pay down its debt, as investors demand that the government pay higher borrowing costs to compensate for the loss of its risk-free status.

In addition, the new European rescue fund, the European Financial Stability Facility, which is designed to prevent the contagion from spreading to large countries like Italy and Spain, would likely see its borrowing costs rise. France is one of its major financial backers, and if the country is downgraded, that could make the fund less effective in stemming the euro crisis.

The "austerity" economists of Europe are wrong, and they will bungle their way into financial market collapse and recession.  The fire next time may not be contained to Europe.