Threat of downgrade for six strongest European Economies

7 Dec

Ratings agency Standard and Poor’s has warned six of Europe’s biggest economies they may lose their cherished high credit ratings.

Standard and Poor’s outlined the reasons for its move: “by our belief that systemic stresses in the eurozone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the eurozone as a whole”.

France and Germany are amongst the fifteen eurozone countries which have been put on negative watch. They currently hold triple A credit ratings. The immaculate rating shows the borrower’s debts pose a minimal threat of defaulting. The implications of a downgrade can be unattractive to investors, who may wish to stay clear of countries at risk.

The move came just days before Friday’s EU summit, where it has been speculated there could be discussions on almost doubling the size of the euro’s rescue fund. This would mean the eurozone’s current bailout fund of 440 billion euro’s will still be in force when a further 550 billion euro’s become available in the middle of next year.

Standard and Poor’s warning had an impact on financial markets today, with a fall on the euro, trading 0.1 per cent at 1.34 dollars today. Government bond yields rocked today, with yields on French 10-year-bond yields a rising ten basis points to 3.21 per cent.

US Treasury bond yields stood out with a session high, rising four basis points, whilst German bunds saw a 2bp fall to 2.18 per cent.

Meanwhile, Italy benefits from an increase in trade, following a slide from an unaffordable 7 per cent that it was recently forced to pay, to 5.81 per cent on Rome’s 10-year-yields.

Investors eagerly await the outcome of Friday’s summit.

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