Credibility cut turns up heat on European leaders

Hürriyet, 16.01.2012

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Friday’s credibility cut by S&P to nine eurozone nations, including France, increases the pressure on leaders who have been seeking concrete solutions to the ongoing debt crisis. The cut may also trigger a hike in lending rates [...]

The downgrades could hurt the EFSF.

S&P warned in December that any downgrade of one of the six triple-A nations could affect the EFSF’s own top rating.

Luxembourg Prime Minister Jean-Claude Juncker, head of eurozone finance ministers, said governments would “explore the options for maintaining the EFSF’s AAA rating.”

Backed by guarantees from eurozone states, the fund borrows from investors at cheap rates and then lends that money to nations that have been shut out of the private markets.

A drop in the fund’s credit rating may therefore lead investors to impose higher lending rates.

A new permanent fund, the European Stability Mechanism, is due to be activated in July with its own capital base of 500 billion euros. Governments are divided over whether to increase its size, with some wary of tapping on taxpayers.

For analysts, the rate cut is a stark reminder that the crisis is far from over.

“The downgrade does not reflect the fact that the efforts of the eurozone to escape the crisis had shown some promising positive results,” said Janis Emmanouilidis, analyst at the European Policy Centre.

“At the same time, the downgrade shows that more needs to be done to manage and eventually overcome the crisis.”

For the original article see here.


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