Fears of another acute crisis in the eurozone eased somewhat yesterday despite the area's official bailout fund seeing its own credit rating downgraded, following the marking down of nine EU nations debt last week.
Rating agency Standard & Poor's (S&P) cut its credit rating of the European Financial Stability Facility by one notch from AAA to AA+ last night, an event that appeared dramatic but had been inevitable after the downgrading of France and Austria by the same margin. Earlier, despite some jitters on currency and stock markets, EU leaders received tentative good news on three fronts. Firstly Greek Prime Minister Lucas Papademos insisted that, despite the breakdown of talks with private lenders on Friday, Athens remained "confident" that it could agree conditions for a new round of EU and IMF bailout cash.
The Moody's ratings agency also announced that it saw no immediate reason to downgrade France's Triple-A debt rating – as rival S&P did last Friday. And, despite the long-expected S&P move, France issued €8.6bn of new short-term debt yesterday at interest rates that were slightly more favourable than those at its last auction. There were twice as many bids as there were half-year and one-year bonds to buy, a sign of confidence in French debt. The French finance minister, François Baroin, said that despite the S&P downgrade, French sovereign debt remained "among the safest investments in the world". "France is a big country with a solid economy... a highly qualified workforce, a resilient banking sector and a high level of private saving," he said.
However, although Moody's said it was maintaining France's Triple-A rating with a "stable" outlook, it said it would reconsider in the spring.
The most immediate threat to the eurozone now appears to come, once again, from Greece. Talks broke down last Friday on the level of "haircut" or losses to be imposed on private debt-holders as part of a €100bn deal to reduce the Greek debt burden. Agreement is a precondition of a new tranche of bailout cash, due in March.