STANDARD and Poor’s last night slashed Cyprus’s sovereign ratings two notches to BB+, throwing its debt into junk territory on concerns at a broadening debt crisis in the eurozone.
The agency, which took ratings action against 16 eurozone nations, said its rating action was driven by an assessment that policy initiatives taken by European leaders in recent weeks could be insufficient to fully address systemic stress in the monetary bloc.
“The outcomes from the EU summit on Dec. 9 and subsequent statements from policymakers lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the euro zone’s financial problems,” Standard and Poor’s said.
It said the political commitment undertaken by euro zone leaders did “not supply sufficient additional resources or operational flexibility” to bolster European rescue operations, or extend enough support for those euro zone sovereigns subjected to heightened marker pressures.
Standard and Poor’s had warned it could downgrade Cyprus last month. It also attached a negative outlook to the rating, suggesting that further downwards pressure was likely.
“For those sovereigns with negative outlooks, we believe that downside risks persist and that a move adverse economic and financial environment could erode their relative strengths within the next year or two to a degree that could warrant a further downward revision of their long term ratings,” it said.
At BB+, Cyprus is officially considered to be in speculative non-investment grade. The finance ministry was due to issue a response to the downgrade today.
Standard & Poor’s mass downgrade stripped France and Austria of their top-grade AAA ratings in a move that may complicate efforts to solve a two-year old European debt crisis.
Germany, the bloc’s largest economy, was spared.
Nine of the 17 members of the euro area had their credit ratings cut by S&P. France and four other countries suffered a one-notch downgrade while Portugal, Italy, Spain and Cyprus were cut by two notches.
S&P reaffirmed the ratings on seven other euro zone countries. The agency said that of the 16 countries reviewed, all save Germany and Slovakia have negative outlooks, meaning more downgrades are possible in the next couple of years.
French Economy Minister Francois Baroin said S&P had notified Europe’s second biggest economy that its cherished triple-A rating had been cut by one notch to AA+, and most euro zone states had received notices of a change.
The euro fell by more than a cent to $1.2650 on the news. European stocks, which had been up on the day, turned negative but reaction to the widely anticipated news was moderate.
Safe-haven German 10-year bond futures rose to a new record high while the risk premium investors charge on French, Spanish, Italian and Belgian debt widened. “This is not a catastrophe. It’s an excellent rating. But it’s not good news,” Baroin told France 2 television, saying the government would not respond with further austerity measures.
