Standard & Poor lowers the Credit Rating for Nine European Countries

Posted by PITHOCRATES - January 15th, 2012

Week in Review

Interest rates are subject to the laws of supply and demand.  The more questionable a borrower looks to be able to repay the loan the higher the interest rate.  Because there is a low supply of people willing to loan to such risky borrowers.  So they have to offer higher rates to get people to take a greater risk.

When S&P took away America’s AAA rating this did not happen, though.  Not because America was immune to the laws of supply and demand in the bond market.  But because Europe had even bigger problems.  And they just got worse (see S&P cuts credit ratings for France, Italy, Spain by JAMEY KEATEN posted 1/14/2012 on Yahoo! News).

Standard & Poor’s swept the debt-ridden European continent with punishing credit downgrades Friday, stripping France of its coveted AAA status and dropping Italy even lower. Germany retained its top-notch rating, but Portugal’s debt was consigned to junk.

In all, S&P, which took away the United States’ AAA rating last summer, lowered the ratings of nine countries, complicating Europe’s efforts to find a way out of a debt crisis that still threatens to cause worldwide economic harm.

Austria also lost its AAA status, Italy and Spain fell by two notches, and S&P also cut ratings on Malta, Cyprus, Slovakia and Slovenia.

Some are arguing that this won’t impact the Eurozone bailout.  Because of the austerity measures the troubled countries have taken.  But it doesn’t help.  It just pushes the final resolution of the Eurozone debt crisis further out.  And probably makes it more unpleasant.

www.PITHOCRATES.com

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