Sunday, January 15, 2012

S & P downgraded 9 Euro-Zone Countries

Dear fellow investors,

Over 13 Jan 2012, Standard & Poor's, U.S.-based ratings agency, downgraded the credit ratings of 9 euro- zone countries. These 9 euro zone countries include Italy, Spain, Portugal, Cyprus, France, Malta, Slovakia, Slovenia and Austria They were stripped of their AAA status either by 1 notch or 2. But Germany is spared from this credit ratings cut.

The agency cited the reasons that the European community had not adequately "address ongoing systemic stresses in the eurozone" - which encompass issues like the tightened credit conditions, rising risks premium, weakened economy growth etc.

The ratings agency mentioned that austerity and budget discipline adopted by the euro zone are insufficient to handle the debt crisis.

But French Finance Minister Francois Baroin said there was no cause for alarm and assured that "This is not a catastrophe. But it's not good news,"

In addition, the fate still hangs in the air for Greece, as Greek negotiators said that debt swap by private creditors remained unresolved. Negotiators were less optimistic and raised doubts over the take-up rate of any voluntary deal.

In Dec 2011, The European Central Bank infuse the banks with cheaper 3 year liquidity that helped ease a worsening credit crunch. This provided funds for the market to buy sovereign bonds.

Chairman of the S & P ratings agency said that preserving the AAA status of France would require the increased commitments from the 4 remaining AAA-rated guarantors, namely Germany, Finland and the Netherlands. But this move could be politically unpopular.

The following video explains the meaning of "Austerity Measures" :


Tony Chai