The euro zone was hit by a triple crisis: the international credit rating agency Standard & Poor’s announced to cut the 9 euro zone countries’ credit ratings, France and Austria both lost the highest rating of 3A. Italy, while Spain and Portugal were reduced by two levels, but the euro zone’s largest economy Germany maintained its 3A rating.
S&P said the downgrade is mainly due to the European leaders have adopted the policies and measures which cannot fully deal with the systemic pressure in the euro zone, and the further contagion trend of the sovereign debt crisis is not curbed. In addition, the treaty agreed at the EU summit last month also failed to achieve a breakthrough, and cannot solve the financial problems as well as the growth dilemma.
The EU reacted strongly. One of the members of the European Commission responsible for Economic and Monetary Affairs Olli Rehn expressed regret to the S&P’s decision on lowering the credit ratings of the euro zone countries.
Rehn said the euro zone has taken a number of measures in fiscal consolidation, structural reforms and improving the banking sector. The European Central Bank has recently taken the initiative to release the liquidity, which eased the pressures on the sovereign bond market and the inter-bank lending market. This week, the euro zone had shown a positive signal as the slowdown in the debt crisis and Italian and Spanish short-term treasury bonds were auctioned at low yields.
A French official said, the rating downgrade “is not a good news, but not a disaster.” For France. He thought the rating agency’s rating actions should only be seen as a reference, the French government will continue to execute the deficit reduction and economy growth stimulation policies and will not introduce a new round of tightening policies for the downgrade.
The Austrian government said the Austrian economic situation was stable, and it cannot understand the rating agency’s decision, as the euro zone countries are working closely to put solutions to the debt crisis.
Although the rating agency S&P downgrade did not lower the rating of Greece with the most serious debt crisis, but this does not mean that the Greek situation has improved. On the contrary, the negotiation over a 50% treasury bond write-down between the the Greek government and the private sector bondholders broke down on the same day.
Market Analysts pointed out that the euro zone market confidence has difficulty to be rebuilt in a short term as the multiple negative factors. The euro exchange rate fell below 1.27 against the U.S. dollar once again for the sixth consecutive week, which was the longest term decline over the past two years, hitting a new low in the recent 17 months.
