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S&P downgrades eurozone rescue fund

Rating agency Standard & Poor’s has downgraded the credit rating of the European Financial Stability Facility, the eurozone’s rescue fund, from AAA to AA+.

The news follows S&P’s decision to downgrade 9 eurozone members on Friday, including France and Austria. It said therefore the downgrade of the EFSF was inevitable. Also on Friday, S&P confirmed the credit ratings of Finland, Germany, Luxembourg and the Netherlands would remain at AAA.

S&P also said there was “at least a one-in-three chance” it will downgrade France and Austria again in either 2012 or 2013.

Despite the news, the FTSE 100 rose sharply this morning, up over 1 per cent at 8am to 5718.

The rating agency put the EFSF’s credit rating on “credit watch” in December and said it would alter it in line with the findings of its review of eurozone members.

In a statement released today, it says: “Following the lowering of the ratings on France and Austria, the rated long-term debt instruments already issued by the EFSF are no longer fully supported by guarantees from the EFSF guarantor members rated ’AAA’ by Standard & Poor’s, or ’AAA’ rated liquid securities. Instead, they are now covered by guarantees from guarantor members or securities rated ’AAA’ or ’AA+’.

“We consider that credit enhancements that would offset what we view as the now-reduced creditworthiness of the EFSF’s guarantors and securities backing the EFSF’s issues are currently not in place.”


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