EU debt crisis worsens as S&P flags credit risk
Last week the Governor of the Bank of England pointed out that the financial crisis in the Eurozone, which he described as a "Solvency crisis, not a liquidity crisis" posed a serious threat to the economies of all trading nations including Britain.
Today we learn that EVERY Eurozone country which was not already at the world's worst rating (Greece) or already under review (Cyprus) has been placed on "Credit Watch"
This means by definition that France, Germany and the other four Eurozone nations which currently have the best possible rating - AAA - are at some risk of losing that status.
I think it is a bit misleading of Sky News to state that Ratings agency Standard & Poor's (S&P) move to place the whole Eurozone on 'credit watch' means that the six countries with AAA ratings "now have a 50% chance of losing that status."
No, it means they are under review.
If the markets really thought that France and Germany had a 50% chance of losing their AAA rating, we would have seen a more extreme reaction : in fact market reaction has been fairly muted, with the FTSE 100 (Euronext: VFTSE.NX - news) falling 0.6% on opening while the German DAX dropped 1.4% and the CAC 40 in Paris Paris lost 0.7%.
On the bond markets too, while the German 10 year debt yield rose slightly countries such as Italy which had been recently under siege saw little damage - falling to near 6.4%.
That may partly be because the traders had already factored into their prices some allowance for the risk of Eurozone countries having their credit ratings downgraded.
Nevertheless this is seriously bad news for the Eurozone countries and bad news for other nations like Britain who are their trading partners.
We may say "Thank God we didn't join the Euro" - and we would be right to say that - but it doesn't alter the fact that what hurts the countries who did join it also hurts us. This emphasises the extreme importance of getting Britain's public finances onto a more stable footing as soon as possible.
Sadly, whoever had won the last general election and whoever wins the next one, the people who are in government in this country will have no easy options, today or for a long time.
Today we learn that EVERY Eurozone country which was not already at the world's worst rating (Greece) or already under review (Cyprus) has been placed on "Credit Watch"
This means by definition that France, Germany and the other four Eurozone nations which currently have the best possible rating - AAA - are at some risk of losing that status.
I think it is a bit misleading of Sky News to state that Ratings agency Standard & Poor's (S&P) move to place the whole Eurozone on 'credit watch' means that the six countries with AAA ratings "now have a 50% chance of losing that status."
No, it means they are under review.
If the markets really thought that France and Germany had a 50% chance of losing their AAA rating, we would have seen a more extreme reaction : in fact market reaction has been fairly muted, with the FTSE 100 (Euronext: VFTSE.NX - news) falling 0.6% on opening while the German DAX dropped 1.4% and the CAC 40 in Paris Paris lost 0.7%.
On the bond markets too, while the German 10 year debt yield rose slightly countries such as Italy which had been recently under siege saw little damage - falling to near 6.4%.
That may partly be because the traders had already factored into their prices some allowance for the risk of Eurozone countries having their credit ratings downgraded.
Nevertheless this is seriously bad news for the Eurozone countries and bad news for other nations like Britain who are their trading partners.
We may say "Thank God we didn't join the Euro" - and we would be right to say that - but it doesn't alter the fact that what hurts the countries who did join it also hurts us. This emphasises the extreme importance of getting Britain's public finances onto a more stable footing as soon as possible.
Sadly, whoever had won the last general election and whoever wins the next one, the people who are in government in this country will have no easy options, today or for a long time.
Comments
This is very true, it was true for me as an 18 year old and its true for governments too.
If you have more going out than you have coming in, then you have problems. The surest way to make the problem worse is to borrow money at interest to pay for your lifestyle today, it will catch you in the end, to the point that all your income pays the interest on the debt, thus you have no money left to eat.
if any other country goes bankrupt it will have a negative effect on us, we trade with the world not just europe, so if its China, the USA, Canada, India, the effect of it will impact us, Europe needs no special status here.
You are right this is a sad situation, but it is the situation we are in. There are no easy options, and this problem will not disappear by magic, if we ignore it, It will NOT go away. Times ahead are going to be difficult, caused because we lived too long on a credit card. I guess mother knows best