S&P warns new recession will hit credit ratings
Published 24/11/2011 | 05:00
CREDIT ratings in the eurozone will come under renewed pressure if large parts of the currency bloc slip back into recession next year, a senior Standard & Poor's expert warned yesterday.
David Beers said that there was a "heightened risk of renewed recession in a growing number of eurozone members" due to "the ongoing confidence crisis".
Mr Beers warned that this could potentially put additional downward pressure on the euro area's sovereign ratings.
"This risk, I regret to say, looks unlikely to diminish quickly."
Speaking at an IBEC conference in Dublin, Mr Beers also warned that the single currency would be damaged if any country left.
Any "laboratory experiment" involving Greece exiting the euro region would have a "huge cost", he added. It would be "foolish to underestimate the consequences of that because the markets would question who's next", he said.
While warning that a departure from the eurozone would be bad news, he said that ratings agency Standard & Poor's did not expect it to happen.
"Our base case scenario is that there will be the same membership of the eurozone in 12 months' time," he told a panel discussion.
"The notion of Greece benefiting from leaving the eurozone is a completely misdirected notion."
Mr Beers, the global head of sovereign ratings at S&P, also said he expected the European Central Bank (ECB) and eurozone governments to come to some sort of accommodation on how to resolve the spiralling sovereign debt crisis.
"With so much at stake, one would expect that some accommodation can be found between eurozone monetary authorities and national policy makers that balances substantive government policy actions with more aggressive steps by the ECB to counter a renewed economic downturn.
"Such steps of course would entail closer policy coordination and a redoubled political commitment at the euro group and EU levels," he added.
The ECB is under growing pressure from world leaders to do more to address a debt crisis that has reached the core of the 17-country eurozone.
German opposition is preventing the ECB from being potentially tapped as a lender of last resort.