It finally happened. For months, S&P has warned an imminent downgrade of several European nations was possible. Late Friday, Standard & Poor announced it was downgrading 9 European nations including Italy, Spain, Portugal, Cyprus, France, Austria, Malta, Slovakia and Slovenia. France lost its coveted AAA rating when they were knocked down one notch. Italy, Spain and Portugal were also knocked down two notches (as well as Cyprus). Germany was spared from losing its AAA status. The United States lost its AAA status in the second half of 2011.
It remains to be seen how U.S. and foreign markets, as well as the Eurozone bond markets will react to Friday’s news. Many wonder how this will affect the ongoing crisis in Europe. In hindsight, will this be viewed as the trigger point that pushed the Eurozone into collapse? Only time will tell.
Europe is currently in an economic contraction, so S&P’s downgrade news couldn’t come at a worse time. Additionally, questions arise with how this will affect China as European exports are a main driver of the Chinese economy. The question remains whether shrinking exports will push China’s economy toward a hard landing as this country is primarily an export-driven nation.
Do you think markets have already priced in the European downgrade, or will next week be reminiscent of last summer following S&P’s downgrade of the United States?