S&P Downgrades Post author By Philip Lane Post date January 13, 2012 The FT report on tonight’s announcements is here. Categories In Uncategorized 46 Comments on S&P Downgrades ← Evidence from the UK on the link between Debt and Depression → Foreign Banks: Trends, Impact and Financial Stability 46 replies on “S&P Downgrades” FT server on overload ! RTE reporting France downgrade – David O’Donnell will be pleased. 😉 Looks like the bruised and battered proverbial “can” has run out of road.:) BANG! Thanks Phillip… 😀 As it stands – France, Austria and Slovakia to get the gun, Netherland and Germany ok, no word yet on Italy, Spain or Belgium. Maybe Portugal too. Assume Finland is ok. Interestingly Ireland hasn’t been mentioned at all. EFSF would, i believe, automatically get downgraded on any France downgrade. Think maybe even if Austria gets clipped. 8pm GMT tonight folks… It should help the Euro down against the dollar. Very few companies are AAA now . It’s the new normal. Probably won’t make any difference given that only a few countries are left on the pedestal . There are $4 trillion in currency shenanigans daily and the money has to go somewhere. Maybe Canada and Norway will get more money looking for a home. @Livonian Don’t hold your breath . Some feed here for the hungry. http://www.cnbc.com/id/45986372 Do we get to hear from Colm McCarthy re Juergen Stark’s speech to the IIEA now? I’ve been looking forward to it. http://www.irisheconomy.ie/index.php/2011/11/21/stark-prognosis/ @ Muireann He can put the pencil sharpener back in the drawer. 🙂 @ All This might be an appropriate moment to re-visit the interview with Regling with Al Jazeera in December. He outlines what might be the response of the EFSF to the eventuality that has now arisen (starting at about 16 minutes into the interview). Raising the amount of cash buffers is the leading possibility. http://www.aljazeera.com/programmes/talktojazeera/2011/12/20111217102347821381.html Oddly enough, the loss of France’s triple A status ties in with the discussion under the thread “Is this the need of the EU project?” (which has unfortunately gone completely off topic). One of the major innovations under the Lisbon Treaty was to break the parity in voting weights between Germany and France, a position which was previously sacrosanct as an indication of equality between the two major players. Long resisted by Chirac, persistent German pressure forced a change to a system of voting weights based directly on population which is to come into force in 2014. Such a system, of course, makes the ready calculation of qualified majorities and blocking minorities extremely difficult and will remove all dynamism from the decision-making process. France is now about to lose parity with Germany, it seems, in the real world of the financial markets. Apart from the direct implications for Ireland, “safely(!)” out of the markets, the wider economic and political ramifications may prove to be profound (apart from impacting Sarkozy’s re-election prospects). To re-work the metaphor of the EU being like riding a bicycle, which falls over if one stops pedaling, it is even worse if the bicycle is swapped for an inter-governmental penny farthing, which is what Merkel and Sarkozy have almost succeeded in doing. I agree that any use of this ‘intergovernmental penny farthing’ will make things much more messy and difficult to achieve, but it is the price the EU Grand Panjandrums will have to pay for previously abusing the community method and not securing sufficient democratic legitiimacy. And the community method isn’t lost. Though many countries might be broadly aligned with Germany, they have no wish to lose the community method. Recall the Father Ted episode when Ted had to dress in a helmet and American football style padding before approaching Fr Jack with bad news ? I rather imagine some such similar scene played out in the Élysée over the past 24 hours. This ratings agency downgrade is only going to feed into the maniacal imp’s paranoia about ‘ze Anglo Saxon model’. Frankly at this stage we need ‘psychological stability’ reports on both Merkel and Sarkozy. Merkel is the arch ditherer and control freak…Sarko is merely a freak. The ratings agencies should employ a panel of psychologists to asess the mental health and temperament of key leaders. That would be some service. Euro oil ration is being transfered to the States / China as Euro falls against the $. The ICB third quarter prediction is looking very foolish now The Dork of Cork Says: October 4th, 2011 at 8:42 pm PS – If the CBs assumptions for the EUR/USD in 2012 of 1.43 is incorrect and we go to parity next year we will not need a petrol /car tax hike. We will get a second bigger European oil shock – this is possible as the ECB refuses to confront the core issue of a defective reserve currency. This means that Europe must do all the adjustment as both America blows it on personel over consumption & the pegged Chinese currency blows it on over investment in fixed capital. This is the core reason why Europe is imploding first. Jean Claude it seems is best buddies with Uncle Ben.” Only the French have the liathroidi to call a halt to this madness and send a metaphorical frigate over to New York by bidding up Gold to extreme levels – but I have no confidence in Sarko – he is a CIA man. Wealth will be transfered to New York although the fall of the euro relative to Sterling helps us a bit it ain’t enough to cover this coming euro oil shock. Sort of on topic. Apparently Ireland has come in the the top 10 in Economic Freedom Index for 2012. USA came in 10th and Ireland appears to be the only EU and EZ country in the top 10. Just in case anyone asks: Sorry I do not “do” links. 🙂 @ Paul Hunt With all due respect, the democratic legitimacy argument, at least as far as the EU is concerned, has been flogged to death and best left to Declan Ganley and the leader writers of the Irish Times. As Article 10 of the TEU states “The functioning of the Union shall be founded on representative democracy. Citizens are directly represented at Union level in the European Parliament. Member States are represented in the European Council by their Heads of State and Government and in the Council by their governments, themselves democratically accountable either to their national Parliaments, or to their citizens”. What more can one ask for ? The issue is one of getting back to the Community method for the economic business of the EU and away from the use of inter-governmental methods (largely borrowed from the conduct of an EU common foreign and security policy which suffers little as it is in itself a bit of a charade). @DOCM@Paul “…..democratic legitimacy argument” I understand Declan Ganley will be making his “argument” on the the Late Late show. Olli Rehn was also asked about this during the week on BBC World Service “Hard Talk” television show. Once again sorry no link but in my experience and, hopefully, mitigation a bit of on line searching is good for our (public awareness) soul. 🙂 I don’t know why anyone finds this surprising. European banks have received colossal sums of money from the ECB. But no bank is buying government issued bonds, despite the lucrative interest/profit that can be made from them. The banks are using ECB credit to ensure their capital ratios are in good order when the inevitable default of Greece comes. @ The Dork “but I have no confidence in Sarko – he is a CIA man.” What now? Hey really? Does he have the cool glasses? @ The Dork and others, “Euro oil ration is being transfered to the States / China as Euro falls against the $.” I was wondering a bit now as to why anyone would want a high currency in a downturn. Is it because a high currency buys more oil? Is there more to it than that? @ Livonian Number 9 it is: http://www.heritage.org/index/ I appreciate your contributions I also appreciate there may be particular reasons you may not do links. But it is very simple, and it is always good to learn new skills. I was going to go through instructions, but frankly ask any human being who is near you how it is done and they will kindly explain. Because human beings, in spite of the situation we find ourselves in, are basically decent. Some people are running onto the pitch….. They think it’s all over…. I note that the FT is also reporting that the Greek PSI talks have broken down. Looks like the end… Live reports here: http://www.telegraph.co.uk/finance/debt-crisis-live/9011904/SandP-downgrade-and-debt-crisis-live.html “19.29 So, according to “people familiar with the matter” around the world, here’s where we stand: France and Austria are the only two eurozone nations set to lose their AAA credit ratings tonight. Germany, Finland, Luxembourg and The Netherlands are safe – apparently. Ireland (rated BBB+) is also said to have escaped a downgrade, while Italy, Spain and Portugal are to be downgraded two notches (Portugal to “junk”). Slovakia has been earmarked for a downgrade, while Belgium, with its high debt-to-GDP ratio and banking sector troubles, is also a likely candidate (although it was downgraded by S&P in late November).” Italy and Spain down 2 notches….game over if true? S&P are always on the ball http://www.reuters.com/article/%5Bb%5D2008/08/13%5B/b}/banking-outlook-sandp-idUSN1336563620080813 Aug 13 (Reuters) – A year-long credit crisis [b]may be only halfway over[/b] and defaults of prime mortgages and problems at U.S. bond insurers are expected to exert a drag on future bank earnings, Standard & Poor’s said on Wednesday. @Gavin The $ is oil the Oil is $erss – the $ oil price must eventually come back to New York & indeed London. Euro needs to devalue against Gold and not the $ to displace the $ as the worlds reserve currency. But its pretty hard when Goldman / US treasuary boys are running the shop. The Euro area is being pushed into a trade surplus which means even France is becoming a colony. Sarko is not a Ethan Hunt type figure but still………… http://www.youtube.com/watch?v=KOi9hHjmYq4 All Presidents in France that avoid even a attempted (warning) assassination litmus attempt are very suspect. Even Chirac who despite being a touch corrupt………. has a touch of class about him. “On 14 July 2002, during Bastille Day celebrations, Chirac survived an assassination attempt by a lone gunman with a rifle hidden in a guitar case. The would-be assassin fired a shot toward the presidential motorcade, before being overpowered by bystanders. The gunman, Maxime Brunerie, underwent psychiatric testing; the violent far-right group with which he was associated, Unité Radicale, was then administratively dissolved” Will they have to get a new acronym instead of PIIGS in a few weeks or am I reading too much in to this downgrade. Could this be vested interests in forcing a change in EU policy by Merkosy. They will have to act now as one of the “pillars” is hurting. The $ is oil , Oil is $ – this forum badly needs a edit button – off the cuff remarks can rapidly lose their bullshit appeal. Italy knocked back to BBB+. What hope for lower yields now? Not sure if that will spur Monti on or cause him to pull in his horns. He is a less biddable than the Commission and others may have assumed. I, for one, welcome our new overlords at Standard & Poor’s. Comparison chart before these updates above: http://online.wsj.com/public/resources/documents/st_EURODEBTRATINGS_CLRD_20110610.html Anyone remember this? http://www.standardandpoors.com/about-sp/articles/en/us/?articleType=HTML&assetID=1245324226051 Well good for you Ernie. One you should remain. Italy joining us in the BBB Negative Outlook Class….hard to believe. Friday 13, seems the summiteers have made a bigger mess than the one made by us. @alchemist “http://news.xinhuanet.com/english/video/2012-01/12/c_131356387.htm BEIJING, Jan. 12 (Xinhuanet) –Italian Prime Minister, Mario Monti has warned that his country needs to see more concrete support from the European Union and Germany, in return for the painful austerity measures it has adopted. Monti’s statement came as he was headed to Berlin on Wednesday, for talks with German Chancellor, Angela Merkel. This is Monti’s first official visit to Germany since taking office in November. Italy is of key concern in the eurozone crisis because of its size, huge debt load and need to borrow heavily in the first quarter of 2011. The yield on Italian 10-year bonds is hovering around the seven percent level, widely considered to be a danger mark. Although Monti’s government has adopted debt cuts and financial reforms, Italy’s borrowing rates remain dangerously high.” The euro is finished: der euro ist furtig! Time for Italy, Ireland, Spain, Portugal, Greece to return to their own currencies. Prospects for Ireland should be good in a PuntNua. A European commonwealth of nations should be able to help trading countries cleanup and facilitate trade after the mess. Perhaps thats something the UK could join as well. @Gavin Kostick: “I was wondering a bit now as to why anyone would want a high currency in a downturn. Is it because a high currency buys more oil? Is there more to it than that? Its not your historical type of downturn. In 1930s global ‘oil’ demand was a lot less and the US was self-sufficient. The situation now is dire. Global productions are stalled (despite solid price levels). Nett available for exports is declining faster than new productions are coming on stream. China and India are semi-stalled, growing slowly. Some importers are growing demand. Price is sort of stable – but very sensitive. Could go in either direction, sharpish. So if a supply shock occurs (major exporter goes off-line or diverts shipments) – then a high currency will save you. If someone pulls a debt plug. Price could drop. But with little appetite for ‘growth’ to get price up, producers might shut in pumpings until things settle down. They need revenues badly. Domestic political stress. Sleep with one eye open. Brian info is coming out thick and fast now France and Austria down one notch Italy down two notches Spain two Portugal two http://www.standardandpoors.com/ratings/articles/en/us/?articleType=HTML&assetID=1245327294763 France downgraded and the 10 year is at a whopping 3.05%. If the economy was healthy the yield would be at least 4%. Where else are les francais going to put their money ? Ils adorent le piat d’or aussi. http://www.ft.com/cms/s/0/78bf6fb4-3df6-11e1-91f3-00144feabdc0.html#ixzz1jNdVX9lT “These revisions in my view clearly run against the spirit of the initial general agreement on an ambitious fiscal compact,” Jörg Asmussen, an ECB executive board member, wrote in the letter obtained by the Financial Times. This S&P action doesn’t really help, does it ? Muireann: Phew! No need to write that tome then. The downgrades are bad but a hard Greek default could be worse. What price Portuguese CDS on Monday? This calls for an emergency summit! Prices for petrol at 1.70 & over in Denmark , Italy & Holland. Just saying like…………… Oh & diesel at 1.744 in the UK. I guess we will see some of our Northern brethern doing the fuel tourism thingy at least. http://www.energy.eu/ All factored into markets. Mario still going to backstop bonds on secondary markets. Biggest problem here is banks and level of funding needed to keep them going. It is really just a more cosmopolitan version of a rural disco where Germany is a shy farmer looking for a wife but he doesn’t have the guts to ask and has enough drink taken and it is 1 am and S&P have just turned the lights down and put on Whitney Houston singing “I will always love Euro “ Three countries now junk, up from one: Greece, Cyprus and Portugal. Four countries now AAA down from six: Germany, Netherlands, Luxembourg and Finland. France warned about contingent liabilities with a 1 in 3 chance of being downgraded from AA this year. In its statement justifying tonight’s downgrades, the rating agency said that fiscal austerity alone “risks becoming self-defeating” and furthermore “does not address the full spectrum of the financial turmoil”. Austria, France, Malta, Slovakia and Slovenia have all been cut by one-notch Cyprus, Italy, Portugal and Spain have been cut by two notches. Germany, the Netherlands, Belgium, Estonia, Finland, Ireland and Luxembourg have all seen their ratings affirmed. We ares still in the game. @Colm McCarthy – how bad could a hard Greek default be? For the last weeks and months the discussions have been based on a 50% nominal haircut, with negotiations thereafter focussing on the coupon and tenor of the new bonds to be issued. In NPV terms, going by the prices of GGBs, the effective NPV haircut is 80% or so. The discussions as between coupon and tenor are pointless – the new bonds are going to be worth 20% of the face value of the old bonds. That those banks which hold Greek debt can then value it on their balance sheets (“our” balance sheets, as eurozone taxpayers) at 50% of current nominal, or 250% above its true value, is an accounting nonsense. (Imagine if those in negative equity in the Irish property market could do likewise – we’d have the best damn over-collateralised banking system in the world). If an end to the current problems is to be reached, it’s going to have to involve a recognition of the losses incurred by the eurozone banking system over the years up to 2007 and subsequently – and the correct apportionment of said losses to the providers of risk capital to the affected entities. Sovereigns have an an interest in ensuring a functioning banking system, not the survival of any individual bank, or assortment of banks. The Guardian has a good follow up in this link. http://www.guardian.co.uk/business/2012/jan/13/eurozone-crisis-live-markets-italian-bond-sale “France and Austria down one notch” One set of Austrians won’t be happy. Will the other crowd be ? One piece of expected bad news and people are running for the hills. Backbones of Irish negotiators 😉 Greece should be interesting. Hedgies are going to require their pound of flesh. Rumour has it they’ve bought up most of the March €14 bn bond. They have CDS also, so they have no incentive to voluntary deal. When it comes to it, I reckon Merkel will pay them off, at least the March bond, and attempt to thwank the can down the road. It looks like the one way Austria could get its rating back would be an, er, “anschsluss” with Germany. “It is really just a more cosmopolitan version of a rural disco where Germany is a shy farmer looking for a wife but he doesn’t have the guts to ask” Wrong, seafóid! We’re the cool urban guy visiting the countryside, and, damn, are those redneck girls ugly! And then DJ S&P even turns the lights on. Eeek! Comments are closed.