S&P's downgrade, an interestingly timed bomb

Xinhua / China.org, 15.01.2012

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The Standard & Poor's downgrading of nine eurozone nations, on first impression, might sound like a heavy blow towards eurozone market sentiment. But analysts believe its follow-on effects may be limited. […]

S&P's decision was confirmed after close-up of European stock markets but it was grabbed by the media beforehand, which saw instant falls in major index.

Its effects is also illustrated in euro's price trends. Euro's value fell below 1.27 U.S. dollar swiftly following its confirmation. It seem short-term effects of the news is somewhat serious.

But analysts doubt its seriousness or scope.

"The downgrade of France and other Eurozone countries is likely to increase the EFSF's financing costs. However, the effects could be limited as the rating of key countries - especially Germany - remains stable with a positive outlook," Said Janis Emmanouilidis, senior policy researcher with European Policy Center, a famous European think-tank located in Brussels.

Some analysts also pointed out that the Standard & Poors' intention was well known days before the officially announced decision, during which markets saw successful auction of government debts of France, Spain and Italy, which means markets were well prepared for the downgrading.

But its effects may still be there, despite above-mentioned facts. "In more general terms, the downgrades undermine the crisis management efforts as they undermine the confidence-building process." said Janis Emmanouilidis.

What's more, it may turn out to be a sword with double edges. "The downgrade indicates that more needs to be done to manage and eventually overcome the crisis." Janis Emmanouilidis said. "The downgrade does not reflect the fact that the efforts of the Eurozone to escape the crisis had shown some promising positive results."

For the original article see here.


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