Tags: FT | S&P | Eurozone | downgrade

FT: S&P Warns 6 Eurozone Countries of Possible Downgrade

Monday, 05 Dec 2011 02:26 PM

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Standard & Poor's is warning Germany and five other AAA-rated eurozone countries they stand to be stripped of their coveted ratings due to the deepening crisis gripping the continent's economy.

The U.S. ratings agency is set to announce that Germany, France, the Netherlands, Austria, Finland, and Luxembourg are now on its list of "credit-watch negative" countries, meaning there is a one-in-two chance of a downgrade within 90 days, the Financial Times reports.

"It warned all six governments that their ratings could be lowered to AA-plus if the credit-watch review failed to convince its experts. Markets have been braced for a potential downgrade of France but few expected Germany’s top rating to be called into question," the Financial Times reports.
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"With regard to Germany, S&P said it was worried about 'the potential impact ... of what we view as deepening political, financial, and monetary problems with the European economic and monetary union.'"

European leaders are racing to rein in the debt crisis and work out a way to stop it from spreading.

S&P says time is running out.

"It is our opinion that the lack of progress the European policy makers have so far made in controlling the spread of the financial crisis may reflect structural weaknesses in the decision-making process within the eurozone and European Union,” S&P concludes, the Financial Times adds.

While eurozone countries have one Central Bank and currency, the all run their own tax and spending policies, although leaders are trying to better coordinate fiscal policies under one roof, which ultimately means some countries giving up control of their spending to others.

A new treaty under proposal would call for automatic sanctions for countries that fail to keep government deficits in check, which markets would like.

"The fiscal stick is being rewarded by the market carrot," says Douglas Borthwick, a currency trader with Faros Trading, according to MSNBC.

"We continue to expect this going forward. The market rewards fiscal responsibility."

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