Downgrade Watch: S&P to EFSF
On Tuesday, Standard and Poor's Corp announced that the long-term credit rating of the European Financial Stability Facility or EFSF is now on credit watch negative. This follows the negative watches placed yesterday on triple AAA rated Austria, Finland, France, Germany, Luxembourg and the Netherlands.
The rating move to credit watch negative means that there is at least a 50% chance of a downgrade in the short term. Standard and Poor's expects to complete the review of the sovereign states in the next 90 days, then it will decide on the EFSF.
Standard and Poor's placed fifteen European sovereign ratings on credit watch negative on Monday saying that they will reach a decision after the results are known in the European Union summit scheduled for Dec. 8 and Dec. 9.
Moreover, S&P said “that systemic stresses in the euro zone have risen in recent weeks to the extend that they now put downward pressure on the credit standing of the euro zone as a whole.”
The five reasons S&P gave for its decision are 1) Tightening credit conditions; 2) Higher risk premiums; 3) Continuing failure to coordinate policy effectively; 4) High levels of debt across the euro zone; and 5) a 40% risk of a recession.
A downgrade to the credit of the EFSF would make the existing plans to bail out member countries of the European Union more expensive and less likely to succeed.
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