The threat by the rating agency Standard and Poor’s to downgrade euro zone countries en masse has raised the question in some minds about whether or not it was politically motivated.
The agency’s warning came scarcely three days before the crucial European Council summit on Thursday and Friday.
Just a few hours before the French and German leaders, desperate to win back the confidence of the markets, said they had reached agreement on imposing more budgetary discipline in the euro zone by changing the European Treaty.
German Chancellor Angela Merkel said: “Many are worried about if they can rely upon us. So it is of utmost importance for the Council to re-establish some of this reliability on Thursday and Friday, and to strengthen the commitments in our consultations.”
Among the stock brokers and bankers in Frankfurt, S&P’s warning was being interpreted in a clearly political light. Market analyst at Baader Bank, Robert Halver explained: “We have a big EU summit next weekend and I guess it was a wake up call of Standard & Poor’s to say: ‘Please policy (sic) do the right things’.”
The man at Standard and Poor’s in charge of rating European countries said a failure at the summit could spark a new negative phase of the financial crisis and would weigh even heavier on market confidence.
Moritz Krämer, Managing Director of European Sovereign Ratings at the agency, said: “Well it’s our opinion that the financial crisis we are witnessing in the euro zone is no longer a crisis of individual countries on the periphery. We think it has taken on a more systemic trajectory. It has been spreading into some core countries and also financial institutions of the core countries.”
Among the 15 countries facing a downgrade, nine could be docked two points, including France, the only one in that group who have a coveted AAA rating.
François Chaulet, market analyst at Montsegur Finance, said: “While we still don’t know the total cost of rescuing, for example, Dexia bank, the agency is being specifically cautious about France. Then there are a lot of individual things that are specific to France – a government that’s made particular announcements, let’s say first of all, to slightly reduce the deficit. We’ve seen the need several times to go back to the drawing board to find other sources of savings. It’s not certain that between now and the next French elections there won’t be the need for more reassuring measures vis-à-vis this rating.”
France holds Presidential and Parliamentary elections in April and June of next year.