Standard & Poor's said Friday that it has downgraded the credit ratings of nine euro area governments, including AAA-rated France and Austria. S&P lowered its rating for Italy, Spain, Portugal and Cyprus by two notches. The move means Italian bonds are now rated BBB+, dangerously close to the junk bond level that could make it even harder for the government to raise money.
France and Austria both had their top-tier credit rating lowered by one notch to AA+, said S&P. But Germany, Finland, the Netherlands and Luxembourg all maintained their AAA ratings. S&P cut the ratings of Malta, Slovakia and Slovenia by one notch.
The agency said at the time that it would conclude its review shortly after the latest summit of European Union leaders, which took place on Dec. 9.
European leaders have been banking on the new fiscal compact, announced at the December summit, to resolve the long running sovereign debt crisis. But S&P said the plan does not go far enough. "In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures," the agency said.
In response, Olli Rehn, vice president of the European Commission, defended European policymakers. He made a subtle dig, referencing an alert S&P accidentally sent to investors last year regarding France's credit rating. "After verifying that ... this time is not accidental, I regret the inconsistent decision earlier today by Standard & Poor's concerning the rating of several euro area member states, at a time when the euro area is taken decisive action in all fronts of its crisis response," Rehn said in a statement.
The plan includes €200 billion of loans to the International Monetary Fund to boost its contingency fund, possible sanctions if member states exceed a 3% deficit ceiling, and accelerated the creation of a permanent bailout fund that will run alongside the current European Financial Stability Facility for about a year.
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