S&P hammers euro zone politicians with downgrades
By Walter Brandimarte and Steven C. Johnson
NEW YORK (Reuters) - Standard & Poor's hit the euro zone with a downgrade of half the countries in the single currency area, including formerly AAA-rated France, and it questioned the strategy of its political leaders for dealing with their two-year old debt crisis.
Germany, the bloc's largest economy, was spared.
In downgrading nine of the euro zones 17 members, S&P said policymakers had not done enough to address the crisis and were even overlooking a key cause of the problem: sharp differences in economic competitiveness among countries that use the euro.
"As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues," the agency said.
While S&P gave higher grades to the European Central Bank for sustaining market confidence through emergency lending to euro zone banks, it said political initiatives thus far "may be insufficient" to address the crisis.
The mass downgrade follows S&P's decision last August to strip the United States of its top credit rating, a move it also chalked up, at least partly, to political stalemate -- namely, lawmakers' inability to agree on ways to cut the budget deficit.
European leaders, including Germany's Angela Merkel, have urged countries to tighten their belts with higher taxes and deep spending cuts to rein in massive budget deficits. But that has heightened market concern about their ability to grow their way back to health, pushing borrowing costs even higher for heavily indebted governments.
"In our view, it is increasingly likely that refinancing costs for certain countries may remain elevated, that credit availability and economic growth may further decelerate and that pressure on financing conditions may persist," S&P said. Continued...