European leaders yesterday described as “incomprehensible” Standard and Poor’s credit rating downgrades of nine debt-laden EU countries, including stripping France and Austria of their top triple-A rating.
S&P is only one agency; rivals Moody’s and Fitch have not issued the same downgrades
Only Germany escaped unscathed, as all other eurozone members were either downgraded – some by two notches – or else warned their current ratings were being re-examined amid fears about sovereign debt.
“It is incomprehensible when one of three US rating agencies decides to go it alone and downgrade eurozone countries’ ratings or give them a negative outlook,” the Austrian government said in a statement, adding that “solutions (to the debt crisis) have been and are being worked out in close cooperation”.
The EU’s internal market commissioner Michel Barnier yesterday said he was “surprised” by the timing of Standard and Poor’s downgrades just when the bloc is toughening budget rules.
Earlier, Economic Affairs Commissioner Olli Rehn called the downgrades “inconsistent”.
S&P is only one agency; rivals Moody’s and Fitch have not issued the same downgrades, but the long-expected news hit the markets hard last Friday.
As news of the report card leaked out, the euro plunged to a 16-month low against the dollar, on what was a grim Friday the 13th for EU policy makers, and in particular for French President Nicolas Sarkozy.
The right-wing leader is facing re-election in three months and his main rival in the presidential race was quick to point out that Sarkozy had staked his reputation on keeping the prized rating – and had failed to do so.
“It is (his) politics that have been downgraded, not France,” said François Hollande, the Socialist candidate who opinion polls say will win the vote to be held in April and May.
In a statement released after US markets closed Friday, S&P said an EU fiscal pact agreed last year “has not produced a breakthrough of sufficient size and scope to fully address the eurozone’s financial problems”.
The statement said France and Austria’s top AAA rating had been cut by one notch to AA+ - with a negative outlook – while it left European powerhouse Germany unchanged at AAA, stable.
The US firm cut its long-term ratings on Cyprus, Italy, Portugal and Spain by two notches; Malta, Slovakia and Slovenia by one notch.
Belgium, Estonia, Finland, Ireland, Luxembourg and the Netherlands all had their current ratings confirmed, but were placed on “negative watch” – meaning they could be downgraded in due course.
“We affirmed the ratings on the seven eurozone sovereigns we believe are likely to be more resilient in light of their relatively strong external positions and less leveraged public and private sectors,” said S&P.
The ratings agency also said the downgrade of France “reflects our opinion of the impact of deepening political, financial, and monetary problems within the eurozone”.
French Prime Minister François Fillon said yesterday the downgrade was expected and should neither be “dramatised” nor “minimised”, and that budgetary “adjustments” will be made if necessary.
But Brussels took issue with S&P, claiming the agency failed to take into consideration the current work by EU governments and institutions to reinforce budget discipline.
“Beyond this rating, which is only one opinion among others, what is more important to me is the objective economic assessment that we are conducting on the current situation,” said commissioner Barnier in a statement.