Is it a real surprise that a Credit agency, again, hogs the limelight? Is it a motivational strategy? Do Euro-member leaders require that extra pressure to get the “job” done? It’s interesting that S&P, who has put the 15 Euro-members, including Germany and France, on credit watch negative, are involved in politics. This creates a +50% probability of ratings downgrades in the next 90-days. S&P expressed particular concern about the inability of Euro area political institutions to deal with the current credit crisis. Their “responsible” actions again have nervous investors wading to the sidelines in the opening session.
S&P is not the only culprit this morning. Capital Markets are also reacting to yesterdays Franco-German agreement reached by Sarkozy and Merkel. The key elements of their agreement are:
- Automatic sanctions for countries violating Maastricht criteria, subject to overrule by a majority vote of Euro area members.
- Acceleration of creation of the European Stabilization Mechanism to 2012
- Germany’s dropped previous requirement for private sector “bail-in” in future sovereign restructuring.