S&P downgrade threat a clarion call for euro reform
The French president and German chancellor are determined to change European rules to impose mandatory penalties on countries that exceed deficit targets, aiming to restore market confidence and prevent a sovereign debt crisis spiraling out of control.Citing &continuing disagreements among European policy makers on how to tackle the immediate market confidence crisis,& S&P threatened to cut the credit ratings of 15 countries , including Germany and France, by 1-2 notches.It also warned of slowing growth amid so much austerity, predicting a 40 percent chance of a fall in euro zone output.A downgrade could automatically require some funds to sell bonds of affected states, making those countries' borrowing costs rise still further.Merkel brushed off the threat.&What a ratings agency does is its own responsibility,& she said, promising that European leaders would make decisions at this week's summit that would restore confidence.Her party's budget spokesman, Norbert Barthle, put an optimistic gloss on the S&P action.&I actually see a positive effect, because now everyone must be aware of how serious the situation is,& he told Reuters. &This will help with the implementation of the proposals laid out by Chancellor Merkel and President Sarkozy to help stabilize the euro zone.&Jean-Claude Juncker, chairman of the 17 euro zone finance ministers, said he was &astonished& by S&P's announcement.European stocks, bond futures, and the euro were hit by the shock warning, halting a rally in global equities that began last week as the MSCI world equity index fell 0.6 percent.Bond yields across the euro zone rose, with top-rated German and French bonds underperforming peripheral debt as a recent flight to quality began to unwind.After two hours of talks with Merkel in Paris on Monday, Sarkozy told a joint news conference: &What we want ... is to tell the world that in Europe the rule is that we pay back our debts, reduce our deficits, restore growth.&Merkel added: &This package shows that we are absolutely determined to keep the euro as a stable currency and as an important contributor to European stability.&Sarkozy and Merkel said they would send their plan to European Council President Herman Van Rompuy on Wednesday, in time for Friday's summit. The Belgian, who will chair that crucial meeting, would have preferred to avoid treaty change but has been sounding out other governments on their receptiveness.He described it as &a wild exaggeration and also unfair& and said it failed to take into account a new austerity plan for Italy, which pulled borrowing costs for the biggest of the euro zone's ailing countries back from the brink.In Paris, Sarkozy's office said S&P had taken its decision last Tuesday, before both the Italian budget and the Franco-German plan for stricter budget rules.U.S. Treasury Secretary Timothy Geithner arrived in Frankfurt to confer with several key European policymakers ahead of the summit on Thursday and Friday, a sign that Washington shares the view that the event will be a make-or-break moment for the global economy.He will meet the leaders of Germany, France , Italy, Spain, the EU institutions and the European Central Bank to press for decisive action to arrest the crisis on his fourth trip to the troubled region since early September.Sarkozy and Merkel's plan to force states to cut deficits would be accompanied by an early launch of a permanent bailout fund for euro states in distress.That could provide the political cover that the European Central Bank needs to buy more bonds of ailing countries as a short-term stopgap, preventing countries from running out of money if they cannot sell bonds on the open market.INVESTORS CHEERECB chief Mario Draghi, who conferred with Geithner on Tuesday, has signaled that a euro zone &fiscal compact& could encourage the central bank to act more decisively on the crisis. It has been reluctant to buy up debt from distressed euro states more aggressively, arguing doing so would take pressure off governments to fix their finances.Just last month , that fate appeared to be approaching for Italy after the interest rate demanded by investors to lend to it soared above 7 percent. But investors cheered a plan announced on Monday by new technocratic prime minister Mario Monti, slashing Rome's borrowing costs.Were it not for his 30-billion-euro austerity plan, Monti declared, &Italy would have collapsed, Italy would go into a situation similar to that of Greece.& Yields on Italian 10-year bonds fell to 6 percent, a full percentage point lower than last week.Sarkozy and Merkel say they want treaty changes to be agreed in March and ratified after France wraps up presidential and legislative elections in June.&We need to go fast,& Sarkozy said.S&P said it would conclude its review &as soon as possible& after the summit, making clear that it wanted to see political as well as financial solutions.It said ratings could be lowered by one notch for Austria, Belgium, Finland, Germany , the Netherlands and Luxembourg, and by up to two notches for the remaining nine placed under review , including currently AAA-rated France. Cyprus was already on downgrade watch and Greece already has a 'junk' CC-rating.
请各位遵纪守法并注意语言文明Breaking Greece’s Back: Another S&P Downgrade? - 24/7 Wall St.
Free Daily Newsletter
The capital markets are already suspicious that Greece will not be able to close a bond support deal with other eurozone countries and the IMF. Ratings agency Fitch told Greece that it needed a transaction with its neighbors to create an air of credibility around the nation’s sovereign debt.
S&P became much more aggressive than Fitch as it told Greece that its status with the credit agency could change.
Reuters, “Greece is at risk of a rating downgrade if high borrowing costs persist and the government does not manage to address the consequent deviation from its deficit-cutting programme.”
Greece is now may move into technical default on some of its notes with the next few weeks, if the expected aid is not forthcoming. The nation could choose to leave the eurozone alliance in the hope that it can devalue its currency. Or, the large, rich nations like German may elect to pressure Greece out of the group so that it is not forced to put German assets into a risk ridden situation.
Either way, Greece is in a death spiral.
Douglas A. McIntyre
Read more: , ,
Please enable JavaScript to view the
Recent Posts
& Wall St.
Powered byCanadian stocks fell after S&P downgrade warning
- Business News - SINA English
Wed, December 07, 2011
Canadian stocks fell after S&P downgrade warning
00:41:25 GMT 08:41:25(Beijing Time)
&Xinhua English
TORONTO, Dec. 6 (Xinhua) -- The Canadian stock market fell lower on Tuesday amid pessimism surrounding the euro-zone debt crisis after rating agency Standard & Poor's warned that it might downgrade the European bailout fund's credit rating.
The S&P/TSX Composite Index dipped 38.08 points, or 0.31 percent, to 12,081.25, after S&P warned that it may downgrade the European bailout fund's AAA long-term credit rating. The S&P/TSX Venture Composite Index also went down 10.66 points on the news, or 0.69 percent, at 1,542.69.
Standard & Poor's warned Tuesday that it could downgrade the rating of the European Financial Stability Facility by one or two notches as European leaders raced to find a political solution to their sovereign debt crisis.
This news came a day after S&P warned of a possible downgrade of the credit rating of 15 euro-zone countries, including continental economic powerhouse Germany and is the rating agency' s second round of warning shot at the euro zone in 24 hours.
Deterioration of credit ratings makes borrowing more expensive for the euro zone. This would be particularly bad news at a time when the euro zone is struggling to increase its bailout fund and recapitalize European banks.
Sadiq Adatia, chief investment officer at Sunlife Global Investments said that S&P is being prudent but it should not be a shock to anyone. "It's just coming at a bad time more than anything else," he added.
Meanwhile, German Chancellor Angela Merkel tried to downplay S& P's statements, saying that she expected a meeting of European leaders later this week in Brussels would help restore markets' confidence.
The Canadian dollar was higher on Tuesday, gaining 0.7 cents to 99.06 U.S. cents as the Bank of Canada announced it was leaving its key rate unchanged at one percent as expected, predicting that Europe's recession would be more possible than previously thought but giving no suggestion of an impending rate cut.
The Canadian central bank was widely expected to leave rates alone amid slowing global economic conditions and uncertainty surrounding the future of the euro zone because of the European government debt crisis.
The Toronto Stock Exchange financial sector was the biggest decliner with 1.27 percent losses following an earnings disappointment from Bank of Montreal. It reported a quarterly profit rise of 21 percent but the profit for share was four cents less than investors had expected. BMO shares sharply fell 2.10 dollar to 57.74 Canadian dollars.
The energy sector lost ground on Tuesday even though the January crude oil contract on the New York Mercantile Exchange rallied to gain 19 cents to 101.18 U.S. dollar a barrel. Suncor Energy fell 0.8 percent to 30.87 Canadian dollar.
News of an acquisition deal in the Canadian resource sector pushed base metals and the mining sector higher by more than four percent.
Vancouver-based mining company Quadra FNX Ltd. said on Tuesday that it is being bought by Poland-based copper and silver producer KGHM for 3.5 billion dollars in cash. Shareholders of Quadra FNX will receive 15 dollars in cash for each common share of the company. Its shares surged almost 40 percent to 15.88 Canadian dollar in a few couple of hours after the announcement.
Furthermore, figures released on Tuesday morning by Statistics Canada showed that the value of Canadian building permits unexpectedly soared by 11.9 percent in October from September, as strength in Ontario helped end a three-month decline.
Add Your Comments:
Your Name:
Your Country:
Comment:(English Only)
Please read our . Messages that harass, abus have obscene or otherwise o have spam, commercial or advertising content or links may be removed.
You might also be interested in:
MOST VIEWEDS&P Downgrade Not Likely to End Partisan Gridlock
S&P claims the two parties need to unite, but downgrade may force them further apart.
Aug. 8, 2011 | 5:05 p.m. EDT
The news that Standard & Poor's, one of the world's top three credit rating agencies, is downgrading America's historically pristine
rating sent shock waves through Washington. It isn't clear how much investors factored in the ratings downgrade into their decisions, but it was clearly one piece of bad news which, combined with a stagnant U.S. economy and turmoil in Europe, sent the stock market tumbling. The decision will only reinforce for much of the world that America's political system may be beyond repair. But it seems unlikely that the downgrade decision will push the political parties into a more cooperative era.
For starters, S&P's rationale for its downgrade is broad enough to conform with almost any political ideology. &The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable that what we previously believed,& the agency stated in its report. &The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.& That statement seems to blame
and the Tea Party for refusing to consider raising the debt ceiling without major policy changes, a stand which nearly pushed the nation into a default. But S&P also chides both parties for failing to use the opportunity as a chance to significantly deal with the long-term fiscal solution. Even if the special Congressional &supercommittee& established by the recent debt ceiling legislation comes up with the $1.5 trillion in debt reduction it is charged with finding, America still wouldn't be on sufficiently firm fiscal footing, S&P stated. Conservative Republicans see this as vindication. &Blaming the Tea Party for America's debt crisis and downgrade is like blaming the fireman for fires,& Kentucky Republican Sen.
said in a released statement. So far, the news has only been met with anger and blame, the two key ingredients for a continuing political standoff.
Furthermore, it isn't clear what economic impact, if any, the S&P ratings downgrade had. The stock market plummeted at the opening bell on Monday, the first day of trading after the announcement. But investors still used treasury bonds as a safe haven, indicating to many analysts that the market anxieties were more about the debt crisis in Europe and the weakening U.S. economy, rather than America's debt rating. &They still are the place that people go when they're frightened,& says Barry Bosworth, a former economic adviser to President Carter and a senior fellow with the Brookings Institution. &S&P just looked like another frightened bystander.& So while the credit downgrade may be embarrassing for the U.S. government, it may not be hitting politicians, or lobbyists, in the pocketbook enough to spur them to serious action toward breaking the political gridlock
Predicting the product of the special committee, which will be selected in the next few weeks and will release its finding in November, has become Washington's new favorite parlor game. But there's isn't any particular reason to think the parties will be any more cooperative within the committee than they were over this summer's debt ceiling negotiations. The historic credit downgrade may have hurt America's image as the world's richest and most financially sound nation, but don't expect it to spur the parties into action.
Check out photos of .
Read Rick Newman: .
You Might Also Like
Dec. 19, 2014
Dec. 19, 2014
Dec. 18, 2014
Dec. 18, 2014
Dec. 18, 2014
Dec. 18, 2014
Dec. 18, 2014
Dec. 18, 2014
Dec. 18, 2014
Dec. 18, 2014
Dec. 18, 2014
Dec. 18, 2014
Dec. 18, 2014
Dec. 18, 2014
Dec. 18, 2014
Dec. 18, 2014
Dec. 17, 2014
Dec. 17, 2014
Dec. 17, 2014
Dec. 17, 2014
Latest Videos
Latest Galleries
Follow U.S. News
Rankings & Consumer Advice
Connect with us:}