S&P: Euro recession would threaten bloc's ratings

Wed Nov 23, 2011 8:56am EST
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By Padraic Halpin and Conor Humphries

DUBLIN (Reuters) - Standard & Poor's warned on Wednesday that credit ratings in the euro zone could come under renewed pressure if large parts of the currency bloc slip back into recession, as expected, next year.

David Beers, the global head of sovereign ratings at S&P, also said on Wednesday he expected the European Central Bank (ECB) and euro zone governments to come to some sort of accommodation on how to resolve the spiraling sovereign debt crisis.

"With so much at stake, one would expect that some accommodation can be found between euro zone monetary authorities and national policy makers that balances substantive government policy actions with more aggressive steps by the ECB to counter a renewed economic downturn," Beers said in a speech in Dublin.

"Such steps of course would entail closer policy coordination and a redoubled political commitment at the euro group and EU levels."

The ECB is under growing pressure from world leaders to do more to address a debt crisis that has reached the core of the 17-country euro zone. German opposition is preventing the ECB from being potentially tapped as a lender of last resort.

But Beers said Germany's perceptions of how to deal with the crisis may change after a rise in its own borrowing costs.

"It's quite telling that there has been upward pressure on yields in Germany - it might begin to change perceptions in Germany," he said.

The German central bank was forced to buy large amounts of bonds at an auction on Wednesday, in one of its worst bond sales since the launch of the euro.   Continued...