Eurozones hypertension recipe: downgrade

In a move that brought the eurozone back to the forefront, S&P last week, downgraded nine economies of the (in)famous bloc, including key member, France. In effect, Italy is believed to be have been downgraded very close to junk bond levels, which puts further question marks not only on the feasibility of the countrys attempts towards fiscal reform, but also its future ability to borrow at reasonable rates. However, it appears that S&Ps move had been anticipated by markets for quite some time, therefore, the downgrades are believed not to have as dramatic an effect on debt markets and sovereign bond yields as would have happened otherwise. European economies are concerned about S&Ps moves, especially considering that the eurozone had come up with a fiscal compact suggesting ways of tackling the persistent crisis last December. According to CNN, this plan envisages "€200 billion of loans to the International Monetary Fund to boost its contingency fund, possible sanctions if member states exceed a three percent deficit ceiling, and...the creation of a permanent bailout fund that will run alongside the current European Financial Stability Facility for about a year". The parallel €500 billion bailout fund has been named the European Stability Mechanism (ESM), and is expected to come into effect this year. However, S&P deems these measures insufficient, claiming that a more "lasting and comprehensive" solution is required. The rating agency calls for the European countries, especially southern European ones, to undertake structural reforms which can help bring about fundamental improvements in economic productivity and growth as well. Angela Merkel, German Chancellor, has called for eurozone nations to activate the ESM "as quickly as possible" and to expedite steps towards fiscal reform. The eurozone has severely challenged by opposing objectives of weak economic growth, together with achieving fiscal austerity to manage their debt burdens. Theyll have to think out of the box if economic growth has to be propelled without the added help of an expansionary fiscal policy. Times ahead will continue to be challenging for the bloc.

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S&P downgrade
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France        AAA        AA+
Austria       AAA        AA+
Slovenia       AA-        A+
Slovakia        A+         A
Spain          AA-         A
Malta           A         A-
Italy           A       BBB+
Cyprus        BBB        BB+
Portugal      BBB-        BB
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Source: CNN