Eurozone crisis: For S&P, the Emperor has no clothes
16 January 2012
Corriere della Sera, Hospodárske Noviny, Die Presse & 3 others
For the European press, the ratings downgrade for nine eurozone countries by Standard & Poor's merely confirms what markets and leaders have known for a long time: that the difficulties of the eurozone are primarily due to rifts between the member countries.
For La Stampa, “Friday’s multiple downgrading is the delayed effect of the disappointing European summit in December. It had been expected, though, so the damage it has caused is, for now, limited…. A greater responsibility now falls on Germany.” The Turin daily adds:
If it were only about paying the debts of other countries, the Germans would have every reason to refuse. But they’re discovering that the markets, just as they were doling out credit too cheaply to big-spending countries before the crisis, are now rewarding the excessive selfishness of the most thrifty of countries. The deeper the crisis, the more billions of euros Germany is saving by paying excessively low interest rates. Responsibility also means refusing excessive largesse.
Diário de Notícias of Lisbon believes that the first consequence of the cut in France’s rating is that-
... on January 13, the Paris-Berlin axis broke. The Rhine will continue to flow stubbornly on. The struggle for a change in European Central Bank policy will intensify. We can expect nothing good from a desperate Sarkozy and a fearful Merkel on her island, which is sinking under the weight of savings of Europeans in search of a refuge. Europe could have a future: federalism, with prosperity. Political union, with confidence. Instead, it is close to imploding, to poverty, to bayonets. The enemy is not the markets. It is the stupidity of politicians.
In Prague, Hospodářské Noviny writes that S&P has concluded only that “the Emperor has no clothes” – after all, the cut in the ratings of nine eurozone countries had been expected. “The downgrade merely reveals what investors have long known: that Europe as a whole does not work too well. [...] If it is to survive, it must change.” Another consequence of this series of downgrades: the European Financial Stability Fund (EFSF) “is losing its fire power… In essence, the sum of money in the fund that may be used to bail out troubled countries has shrunken from €440 billion to just € 290 billion.”
According to experts, S & P’s announcement will increase the pressure on the European Stability Mechanism (ESM), which in any case was to replace the EFSF [on July 1], to come into effect right away. The advantage of the ESM is that it does not depend on country ratings, because it has its own capital. [...] The cut in France’s rating will strengthen Germany’s role in the operation to rescue the eurozone. Sarkozy is growing weaker. The rescue of the eurozone will be led by Merkel.
In Austria, the press is not kind to the government, which called the downgrade “surprising” and “incomprehensible”. Vienna’s Die Presse wonders where the "surprise" was, noting that Standard & Poor's had given a thumbs-down in December, when it stated that a decision would come in 90 days. The Vienna daily invites the government to-
... change course before it suffers Italy’s fate. [...] In calling the downgrade "incomprehensible", the government is failing to take it into account and is pressing even harder on the accelerator in our race to a new ratings cut.
The same feeling seems to prevail in Slovakia, where Hospodárske Noviny notes that Friday 13 brought bad luck to the eurozone:
Politicians are not doing enough to improve the situation. As a result, Slovakia is paying for joining the euro club. [...] We are under stress from the bailout of Greece and the contribution to the EFSF. The result: political instability and early elections.
Ultimately, remarks the Corriere della Sera, the “mass downgrade” is a statement of mistrust towards the euro that has strong political motivations, “coming from a country [the U. S.] that has always been sceptical about the fate of the single currency.” That said, the “real problem”, according to the Milan newspaper-
... is that these ratings, which should alert investors by pointing out risks they have not yet perceived, in fact come when these alerts have already spread widely among the markets. [...] The well-known message from S&P has emerged reinforced: the European crisis is profound, and there are no easy solutions. The road ahead is long and has plenty of dangerous bends.