S&P puts 15 eurozone countries on credit watch

[Teh One Who Knocks]

By GABRIELE STEINHAUSER and GREG KELLER, Associated Press


BRUSSELS – Standard & Poor's threatened Monday to downgrade the credit rating of 15 eurozone countries, piling pressure on the currency union's leaders to take radical steps to resolve their debt crisis at a summit later this week.

The decision to put 15 eurozone countries — including AAA-rating nations such as Germany and Luxembourg — on watch for a possible cut in their credit worthiness also threatens to throw the eurozone's bailout mechanism into disarray, since the rescue fund relies on those countries' stellar rating to cheaply raise money on the markets.

"Today's CreditWatch placements are prompted by our belief that systemic stresses in the eurozone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the eurozone as a whole," S&P said in a statement shortly after markets closed in the United States.

The only two euro nations not put on credit watch were Cyprus, which was already under review, and Greece, which already holds the world's worst rating.

The announcement came only hours after French President Nicolas Sarkozy and German Chancellor Angela Merkel revealed sweeping plans to change the European Union treaties in an effort to keep tighter checks on overspending nations. The proposal is set to form the basis of discussions at a summit of EU leaders on Thursday and Friday that is expected to provide a blueprint for an exit from the crisis.

While the Franco-German plan would tie the 17-eurozone nations closer together, a tighter union would likely also result in heavier financial burdens for the region's stronger economies, which have already put up billions of euros to rescue Greece, Ireland and Portugal.

Analysts also noted that the proposals did not foresee a clear roadmap on how to get the eurozone economies growing again and to reduce funding costs for struggling nations in the long-term.

S&P said a rising risk of another recession in the currency union was one of the reasons behind its decision.

But the rating agency also appeared skeptical of the Merkel-Sarkozy plan and the ability of the eurozone as a whole to agree on new measures to fight the debt crisis, citing "continuing disagreements among European policy makers on how to tackle the immediate market confidence crisis and, longer term, how to ensure greater economic, financial, and fiscal convergence among eurozone members."

Many analysts have called on the European Central Bank to intervene in debt markets to lower struggling countries' borrowing costs or the creation of eurobonds — debt backed by all 17 euro countries.

France and Germany, the eurozone's two largest economies which currently both have a AAA-rating, quickly came out against the S&P move.

"Germany and France reaffirm that the proposals they made jointly today will reinforce the governance of the euro area in order to foster stability, competitiveness and growth," they said in a joint statement. "France and Germany, in full solidarity, confirm their determination to take all the necessary measures, in liaison with their partners and the European institutions to ensure the stability of the euro area."

The euro fell after the S&P announcement, trading down 0.1 percent at $1.339 and trading in futures on the S&P 500 and Dow Jones Industrial Average turned negative.

[FBD]

cripes just let it go already!!!! fkn euro was a terrible keeping up with the jonses experiment and its failed.

[Deepsepia]

cripes just let it go already!!!! fkn euro was a terrible keeping up with the jonses experiment and its failed.

Which "Jones" are you referring to?

[Arkady Renko]

well, I'm not so sure about the quality of their judgement anymore, what with all the subprime loan bundles that got good ratings, but they do have a point. If France, germany and the Netherlands actually end up vouching for the entire debt of the eurozone in some form or another, be it eurobonds, an extended "stabilization facility" or more loans, that certainly will jeopardize their solvency in the long run.

[FBD]

Which "Jones" are you referring to?

THE Joneses, man - the USA - aka "we want our currency to be as powerful as yours"


:lol: or,
By pooling all of our monies and debt and giving lip service to fiscal solvency, we can let those slackers who dont want to pay for the lives they lead just go ahead and slack, and we'll tax the productive along with our allies' banks to cover it! It'll be great!

More evidence that top down centralized direction isnt going to make populations and markets obey your flimsy whims!

[Deepsepia]

well, I'm not so sure about the quality of their judgement anymore, what with all the subprime loan bundles that got good ratings, but they do have a point. If France, germany and the Netherlands actually end up vouching for the entire debt of the eurozone in some form or another, be it eurobonds, an extended "stabilization facility" or more loans, that certainly will jeopardize their solvency in the long run.

At this point, its very hard to say what the right thing to do is. . . seems to me that "core Europe" needs to find a way to shed the periphery. The problem is that the Euro has taken devaluation off the table for countries like Greece . . . what would normally happen is that a floating drachma would fall by %60, and many of the adjustments would occur automatically.

With Greece in the Euro, adjustments have to be done politically, which is painful, slow and difficult.

[Arkady Renko]

THE Joneses, man - the USA - aka "we want our currency to be as powerful as yours"


:lol: or,
By pooling all of our monies and debt and giving lip service to fiscal solvency, we can let those slackers who dont want to pay for the lives they lead just go ahead and slack, and we'll tax the productive along with our allies' banks to cover it! It'll be great!

More evidence that top down centralized direction isnt going to make populations and markets obey your flimsy whims!

I still think that the original idea of the common currency was good and also viable, all the trouble we're seeing right now would not have happened if the inclusion criteria hadn't been watered down from the original level and if the other members hadn't turned a blind eye on Greece's and Italy's blatant cooking of their books. Even then, if these countries had used the window of opportunity where they could borrow at much lower interest rates than they reasonably should have, wisely, to cut deficits and refnance, they would have had a good chance of turning things around even with a currency that was "too ard" for them to handle. But instead they pulled out all the stops on the public spending because it was so tempting to take advantage of the low interest rates for their bonds.


At this point, its very hard to say what the right thing to do is. . . seems to me that "core Europe" needs to find a way to shed the periphery. The problem is that the Euro has taken devaluation off the table for countries like Greece . . . what would normally happen is that a floating drachma would fall by %60, and many of the adjustments would occur automatically.

With Greece in the Euro, adjustments have to be done politically, which is painful, slow and difficult.

Yeah, it's gonna suck big time to be the prime minister of Greece, Italy and to a lesser extent, Spain for a long time now. They'll have to pay for their sins of the last two or three decades. The thing is, a lot of people over here don't want to acknowledge that. They're all hot and bothered about saving our brethren of the mediterranean yadda, yadda. I suspect they know full well that even Germany will soon have to start with a new round of very unpopular reforms because our public finances will inevitably come under a lot of pressure a few years from now.

[Acid Trip]

what would normally happen is that a floating drachma would fall by %60, and many of the adjustments would occur automatically.

In other words, the Free Market would correct itself in this situation. The way the EU is setup it prevents normal market forces from correcting and therein lies the problem.

The EU is a doomed experiment. They attempted to turn sovereign countries into states (like the US) without installing a Federal Government to govern the group as a whole. That is why Germany and France now want to review and approve/deny the budgets of fellow EU countries. It's the only way to assure member countries keep their budgets in line and keep the Euro from devaluing for everyone.

The day that California or some other big state can't balance it's budget we'll see something similar happen here. We however have a Fed that can (and likes to) print money. As long as people keep buying treasuries though we'll be okay. Greek bonds might as well be called money pits.

[FBD]

I still think that the original idea of the common currency was good and also viable, all the trouble we're seeing right now would not have happened if the inclusion criteria hadn't been watered down from the original level and if the other members hadn't turned a blind eye on Greece's and Italy's blatant cooking of their books. Even then, if these countries had used the window of opportunity where they could borrow at much lower interest rates than they reasonably should have, wisely, to cut deficits and refnance, they would have had a good chance of turning things around even with a currency that was "too ard" for them to handle. But instead they pulled out all the stops on the public spending because it was so tempting to take advantage of the low interest rates for their bonds.
yeah, the typical "hand shit out like mad, it'll get us reelected" scheme...

[Arkady Renko]

In other words, the Free Market would correct itself in this situation. The way the EU is setup it prevents normal market forces from correcting and therein lies the problem.

The EU is a doomed experiment. They attempted to turn sovereign countries into states (like the US) without installing a Federal Government to govern the group as a whole. That is why Germany and France now want to review and approve/deny the budgets of fellow EU countries. It's the only way to assure member countries keep their budgets in line and keep the Euro from devaluing for everyone.

The day that California or some other big state can't balance it's budget we'll see something similar happen here. We however have a Fed that can (and likes to) print money. As long as people keep buying treasuries though we'll be okay. Greek bonds might as well be called money pits.

actually, the european bond crisis IS the free market at work. Since devaluation is not an option, the interest rates for (e.g.) greek bonds soar. Trying to fight this trend seems like fighting windmills to me.

As for the EU, the main problem as I see it is the parallel existence of the European Union with 27 members and the European Monetary Union with 17 members. Since their prerogatives and tasks are not as clearly separated as they should be, there's a mess when swift action is required like right now. Major EU members such as Britain and Poland who kept their own currency will now have to be included in the "rescue measures" that do not concern them directly. In the same vein, installing an economic control institution within the EU so as to ensure convergence between the members of the EMU is a half baked solution. In my opinion the proper and most promising procedure would be to amend the EMU treaty and install and implement strict control of budget and lending policies within the EMU member countries through an independent authority.


yeah, the typical "hand shit out like mad, it'll get us reelected" scheme...

that's the one. Unfortunately there are only a select few politicians wh can withstand the temptation because there are only a select few citizens who can be bothered to think in long term perspective.

[FBD]

that's the entire point of the tea party, Arkady :thumbsup:

[Arkady Renko]

that's the entire point of the tea party, Arkady :thumbsup:

to some extent I'm willing to believe that, although I wonder if promising people that public finance can be restructured without increasing tax revenue isn't just a new variant of the same old trick...