Standard & Poor's threatens to downgrade all of Europe

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Maybe it's too paranoid-delusional to expect that top executives at Standard & Poor's are massively short the global equities market - but the U.S.-based rating agency does seem to take a macabre glee in prodding the world economy towards the brink of crisis.

Back in August, it downgraded the U.S. government's sovereign credit rating, bumping it one notch below the top AAA level. That move precipitated massive jitters in stock  markets around the world, though it ironically compressed Treasury bond yields, which tenaciously clung to their status as the haven asset of last resort. The Senate even vowed at the time to investigate S&P for potential wrongdoing or conflicts of interest . The agency already faces criticism for its abysmal record of rating  mortgage -backed securities in the buildup to the 2008 financial crisis.

The agency also took aim at Greece, Italy and Spain this year, knocking down their ratings a peg or two and exacerbating further crises. 

Now S&P is gunning for an even bigger buck - the continent of Europe . It put  the long-term ratings of 15 eurozone nations on "CreditWatch with negative implications" in a new press release on Monday, threatening the AAA ratings of Austria, Finland, France, Luxembourg and the Netherlands. It even added Germany to the list, taking aim at probably the most credit-worthy nation in the world.

Stock futures hung near the balance point, with Dow Jones Industrial Average index futures down 5 points, S&P 500 index futures up 6.1 points and Germany's DAX index futures down 25 points at 6 a.m. EST.

There's no question that the E.U. has to get its financial house in order , which will inevitably mean shoring up the integrity of the whole structure with the fiscal restraint and economic power of the French and German economies. It's the political challenge of true unification - making all of Europe responsible for each part - that presents the most pressing challenge. 

Henry Farrell, a professor at George Washington University, put the case succinctly in a recent book review of David Marquand's The End of the West  published in the pages of The Nation:

"...Europe cannot survive for very long in an ambiguous zone where it is being shelled from all sides," writes Farrell. "The EU either needs to move backward, trying as best asit can to unravel the weave of intertwining commitments that it has created around the eurozone, or forward, toward a truly federal Europe. While moving forward is immensely difficult, moving backward could be an unmitigated disaster."

S&P's threatened downgrades could theoretically sharpen the minds of the relevant European leaders, particularly Chancellor Angela Merkel and President Nicholas Sarkozy. They're rather more likely to send markets stampeding for the exits. 



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: News Headlines , Bonds , International

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Daniel Pereira


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