Any sense of euphoria EU leaders felt about agreeing a plan to underpin Europe’s banks – which should have been muted anyway – may be tempered by S&P’s decision to cut the bloc’s credit rating to AA+ from AAA.
In global terms that’s still rock solid but the rationale – flagging “rising risks to the support of the EU from some member states” has some resonance. On the upside, the agency affirmed its rating of Ireland following its bailout exit and kept its outlook positive. Presumably, S&P is clearing the decks before Christmas because it also reaffirmed the UK’s top notch AAA rating, and reaffirmed South Africa too.
The EU quote packs a punch following a banking union deal where Germany successfully saw off plans for euro zone countries to help each other in tackling problem lenders.
The fact that bank creditors and investors will get hit first in future diminishes the threat to euro zone governments but for several years at least there is no mutual backstop so the buck will continue to stop with them and the potentially ruinous link between failing banks and heavily indebted sovereigns is unbroken.
Cohesion has diminished, S&P concluded.
The history of the euro zone crisis has been that when the pressure diminishes, policymakers lose their sense of urgency so if there was another crunch they would doubtless rush to bolster their defences. The power of ratings agency rulings to roil financial markets is also much diminished – the euro edged down but no more – but there is something to this analysis.