hurricanemaxi
Joined: 04 Nov 2011
Posts: 120
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 Posted: Tue Dec 06, 2011 7:44 am Post subject: S&P Jumps Into Politics Again With EU Warning |
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Standard & Poor’s, rebuked by Warren Buffett in August after downgrading the U.S. over government gridlock, is again injecting itself into the political process, just as European leaders are poised to meet for a summit aimed at ending the region’s sovereign-debt crisis.
The ratings firm put Germany, France and 13 other euro-area nations on review for a downgrade yesterday, saying “continuing disagreements among European policy makers on how to tackle” the region’s debt crisis risk damaging their financial stability. The move came four months after S&P cut the U.S. to AA+, saying “extremely difficult” political discussions over how to reduce America’s more than $1 trillion budget deficit tainted the credit quality of the world’s largest economy.
Bondholders questioned the timing of S&P’s move, with European Union leaders planning to meet Dec. 8-9 in Brussels to end a crisis that led to bailouts of Greece, Ireland and Portugal, and now threatens to engulf Italy. German Chancellor Angela Merkel and French President Nicolas Sarkozy presented a plan earlier in the day to rewrite the EU’s governing treaty to allow tighter economic cooperation.
“S&P should back off,” Anthony Valeri, a market strategist with LPL Financial in San Diego, which oversees $330 billion, said in a telephone interview yesterday. “It complicates the job of the EU leaders to resolve the debt problem.”
$8.1 Trillion
Grades may be lowered by one level for Austria, Belgium, Finland, Germany, Netherlands and Luxembourg, and as many as two steps for the other governments if the summit results don’t satisfy S&P’s criteria, the firm said. More than $8.1 trillion of government debt would be affected if S&P does downgrade all the nations, according to data compiled by Bloomberg. Germany and France are rated AAA.
“The upcoming European summit,” S&P said in a report, “provides an opportunity for policy makers to break the pattern of what we consider to have been defensive and piecemeal measures to date, overcome individual national interests and preferences, and advance a credible response to the crisis that would go far towards restoring investor confidence.”
The move to tie ratings to the outcome of the summit drew criticism from European Central Bank Governing Council member Ewald Nowotny of Austria, who said in an interview that it “highlights the problem that rating agencies increasingly are assuming a political role.”
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