S&P: Pressure on Eurozone from Credit Rating Threat

S&P's threatens Germany, France, and 4 other countries with top AAA rating

S&P’s threatens Germany, France, and 4 other countries with top AAA rating

Though the leaders of France and Germany have today agreed on a master plan on changes to EU treaties, the progress does not seem to be enough for ratings agency Standard & Poor’s.

In an attempt to add to the mounting pressure on Merkel, Sarkozy, and other eurozone leaders to fix the debt crisis, S&P’s has warned that 15 of the 17 eurozone countries could be downgraded en masse.

Euro situationt

The group that received the warning include Germany, France, and four other countries in the bloc that all had top AAA credit rating.  S&P’s said that the group downgrade in credit rating could happen within the next 90 days, if faster progress is not shown.

However, the eurozone has enjoyed a bit of good news this week, as Italy’s borrowing costs have tumbled after the new Prime Minister, Mario Monti, announced his government’s new austerity programme.

Italy, one of the largest economies in the eurozone, is perhaps the bloc’s most debt laden nation, and many continue to fear the country’s disorderly default on unsustainable borrowings.

Merkel and Sarkozy, leaders of Germany and France, have also made progress in their meeting that took place on Monday. They have reached an agreement as to what they will propose in a crucial summit in Brussels on Friday.

The treaty change should be agreed upon in March and ratified after France has its elections in June, the two European leaders said after their meeting.

Sarkozy said, aptly, “We need to go fast.”

Paying debts

Going fast is exactly what S&Ps has recommended in order to stay ahead of the looming credit ratings cuts. It said that it will conclude its review of credit ratings “as soon as possible” after Friday’s EU summit.

The announcement has put even more pressure on European policy leaders during a week that has already been marked crucial for the fate of the euro.

The ratings agency said that the cuts may be necessary because the “systematic stresses” within the eurozone are now “putting downward pressures” on the credit standing of all member states.

S&P’s did not take into account Merkel and Sarkozy’s Monday announcement for EU treaty reform, leaving the whole world watching to see what will happen after the Brussels meeting on Friday. Sarkozy said that what European leaders want “is to tell the world that in Eurorope the rule is that we pay back our debts, reduce our deficits, restore growth.”

All are hoping that Sarkozy’s statement holds true, and that treaty change proposals will truly be as big of a boost for the bloc as expected.

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