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AMID A WAVE of criticism, Standard & Poor’s has defended its decision to downgrade nine European countries and insisted that the region’s leaders aren’t doing enough to solve their debt crises.
The prime minister of France, the biggest economy hit by the downgrade, vowed to press ahead with cost-cutting measures that opponents say will suffocate growth. The loss of its coveted AAA status wounded France’s self-image and market credibility just as it’s facing a new recession and presidential elections.
The move on Friday night may make it more expensive for struggling countries to borrow money, reduce debts and sustain growth. It also came just as crucial negotiations between the Greek government and its private creditors appeared close to collapse.
Voices rose up yesterday against the power that ratings agencies wield. The criticism came from countries targeted by the downgrade such as Austria and Cyprus as well as from Germany, which was spared the blow.
The downgrade brought a downbeat end to a mildly encouraging week for Europe’s most debt-laden nations. It also served as a reminder that the 17-country eurozone faces what German Chancellor Angela Merkel called a “long road” ahead to win back investors’ confidence.
Cyprus President Dimitris Christofias called the downgrade “unacceptable.”
“The latest downgrade is completely unfair and loaded with ulterior motives,” he told reporters. “Just when the Cyprus economy is breathing easier and showing signs of emerging from the crisis, and when our financing needs for 2012 and perhaps beyond 2012, have been covered, a (credit ratings) agency comes along to downgrade.”
Austria’s chancellor criticised S&P’s decision to strip his country of its AAA rating, and noted that his coalition government is working on an austerity package.
Werner Faymann wrote on his Facebook page that the decision showed “that Austria must become more independent from the financial markets.”
In Germany, a senior lawmaker with Merkel’s conservative party, Michael Meister, suggested action to reduce the significance of ratings, and Merkel signaled her support.
The foreign minister called for independent European ratings agencies instead of relying solely on the leading, US-based agencies such as Standard & Poor’s.
And Vice Chancellor Philipp Roesler, who is also the economy minister, was quoted as telling the weekly Der Spiegel, “It is apparent time and again that US rating agencies pursue very much their own goals.”
It’s unclear though whether a European agency would come to different conclusions or reduce what critics see as a disproportionate influence that ratings agencies have on markets and policymakers.
S&P spokesman Martin Winn dismissed suggestions that the agency’s decisions were political and could further hurt indebted countries. “The track record of our sovereign ratings as indicators of default risk worldwide is very strong,” he told The Associated Press.
S&P analyst Moritz Kraemer said in a conference call Saturday that European government measures aren’t sufficient to restore confidence.
“They have not achieved a solution that is sufficient in size or scope,” he said. He added that austerity measures require “huge sacrifices” of the public that might prompt a backlash.
Merkel and French Prime Minister Francois Fillon said the downgrades should push European countries to quickly implement a planned pact to strengthen budget discipline.
Germany and France have piloted rescue efforts for other eurozone countries as the continent has been swept up in crisis after crisis over the past two years. The downgrade, by pushing up France’s borrowing costs, could make it harder for France to help others.
Merkel sought to allay concerns that the downgrade of France would complicate the work of the bloc’s temporary rescue fund, the €440 billionEuropean Financial Stability Facility. However, she underlined the urgency of putting its permanent successor, the European Stability Mechanism, in place quickly.
Fillon said France’s government wouldn’t adjust this year’s budget yet, because it had been devised with an assumption of higher borrowing costs. S&P had warned 15 European nations in December that they were at risk for a downgrade, and Moody’s has France and other European governments on review.
The downgrade, three months before France holds presidential elections, was “an alert that should not be dramatised any more than it should be underestimated,” Fillon said.
Standard & Poor’s stripped France of its coveted AAA status, knocking it down one notch to AA+, the level of US long-term debt after S&P downgraded it last summer. It dropped Italy even lower. Germany retained its top-notch rating, but Portugal’s debt was consigned to junk.
Stocks fell Friday as downgrade rumors reached the trading floors of Europe and the United States. But the declines were nothing like the wrenching swings of last summer and fall.
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A US company, Europe needs to stop giving a shit, they’ve got a big enough problem themselves with their worthless Dollar.
Their “worthless dollar” is still the most important currency in the world. Trying to say the downgrades are political won’t wash, any independent agency would come to the same conclusion. If Europe starts it’s own and it finds otherwise it will have no credibility. The only people who think that austerity alone will work are the fools who run Europe.
I don’t see the benefit of them though, just used an established company because it’s there? Doesn’t seem sensible. Especially one that is probably not impartial.
I agree with what you say about the dollar, for now. It’s definitely in decline, once they’ve printed enough and it’s worth even less people will cop on surly?
These ratings agencies opinions remain worthless.
Especially when you have guys like Warren Buffet(one of the worlds largest investors/richest men) owning large stakes in Moodys and the likes.
Some powerful people must be betting against the euro.
Rating agencies just another clog in a corrupt system but always great to see sarkozy kicked in the b*llox.
Rating Agencies have no credibility since for a fee you can have a new favorable rating !
Wake up Merkozy!
The Government austerity forced on EU states by Germany and the ECB is the reason for the downgrades.
The S & P FAQ document says: “we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.”
Are these the same agencies that didn’t see the downfall coming?
Amazes me why anyone would take any notice these agencies. They are as corrupt as it gets and in no way offer fair or unbiased assessments. Intergral parts of the international financial scam. Having worked with two of the better known agencies on some projects in the past my assessment is that they are well aware of their pointlessness. I always felt sorry for the guys working in them for the fact that they knew just how futile their lives’ work was. Sad.
These are the same ratings agencies that rated Ireland as an AAA+ country when the likes of Anglo were loaning out €700 million Euro per week in 2007 in property loans. The share a responsibility for the mess this joke of a country finds itself in..
Dead on, Chris! Why should we believe their faulty assessments?
These ratings agencies need to be banned or outlawed or something. They’ve got a rope around the neck of global finance and trade and every time they decide to tighten it a bit everyone chokes. They are private concerns operating for profit and I don’t think it’s right that they have such power and influence over global markets, trade and ultimately the ordinary citizen. Capital really stinks sometimes and the existence of these agencies is a prime example of that.
Meant to write “capitalism really stinks….”.
Where were these credit rating agencies during Celtic tiger? We need to seriously exercise our legs and march for a better Ireland. Get them to rate the dail and the previous government… Arseholes
Ignore the claim these credit agencies are unbiased analysts of world finance! They are like racing tipsters with the perceived power to influence the S.P’s of national economies on which global private capital investors subsequently punt. They have no interest in the citizen or how its society may or may not be developing… no, their sole interest is in where the fastest buck (for private investors) can be made. Unfortunately, with the compliance of shortsighted governments, it’s the citizen who is forced to stump up when the tipsters get it wrong. Apparently the weak link is the democratically elected governments exhibiting a serious lack of creativity (in tackling the assaults) and loyalty (to its citizenry). Governments need to re-prioritise and reconnect with their role in the scheme of things and that is to look after their peoples and NOT pander to faceless investors playing god from the sanctity of hushed boardrooms.
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