Debt Critis: S&P downgrade could mean higher borrowing costs for Ireland and Portugal
SPECULATION was growing today that ratings agency Standard & Poor’s will cut the credit ratings of a number of European countries including France as early as tonight.
But if France’s AAA rating is cut it could make the cost of borrowing for Ireland from the EU/IMF/ECB more expensive because the move would have a knock-on effect on the European Financial Stability Facility (EFSF) bailout fund.
A France downgrade would make the cost of borrowing for the bailout fund more expensive because the country is one of its guarantors and these higher costs would be passed onto Ireland and Portugal.
It is understood that Germany, Belgium, Luxembourg and the Netherlands, will be spared the downgrades.
News of the move pushed the value of the euro down as well as worldwide stock markets.
In December, S&P placed 15 of 17 eurozone countries on watch for a possible downgrade, citing new debt crisis pressures for the area’s credit rating.
Ireland is facing a potential two notch downgrade in this latest move.
Downgrades would also undermine growth forecasts for the whole area and put more pressure on countries finances.
Italy, for example has to raise billions of euro in the open market this quarter.
IT would also be politically embarrassing for French President Nicolas Sarkozy who is facing an election.
Meanwhile, talks between Greece and its creditors have broken down in a new blow.
If the two parties do not reach an agreement on the country’s debt, Greece will not get the latest €130bn bailout trance and faces a disorderly default in March.