France and Austria lost their top credit ratings at Standard & Poor’s in a string of downgrades that left Germany with the euro area’s only stable AAA grade, hindering leaders’ efforts to stem the region’s fiscal crisis.
France and Austria were cut one level to AA+ from AAA and face the risk of further reductions, the rating company said in Frankfurt today. While Finland, the Netherlands and Luxembourg kept their AAA ratings, they were put on negative watch. Spain and Italy were also downgraded. The first gauge of the report’s impact will come on Jan. 16 when France sells as much as 8.7 billion euros ($11 billion) in bills.
“In our view, the policy initiatives taken by European policy makers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone,” S&P said in a statement.
S&P acted at the end of a week in which signs grew that Europe’s woes may be cresting as borrowing costs fell, evidence of economic resilience emerged and the European Central Bank said it had quelled a credit crunch at banks. While France’s downgrade may make it harder for the euro region’s bailout fund to raise money in financial markets, the immediate impact on French and Italian bond yields was muted.
“I’m not convinced that the downgrades will have a massive market impact,” said Jonathan Loynes, chief European economist at Capital Economics Ltd. in London. “It does further underline the fact that the fiscal crisis is no longer confirmed just to the small peripheral economies.”
