France and Austria lost their top credit ratings at Standard & Poor’s in a swath of downgrades that left Germany with the eurozone’s only stable AAA grade, hindering leaders’ efforts to stem the region’s fiscal crisis.
France and Austria were cut one level to AA+ from AAA and face the risk of further reductions, the rating company said in Frankfurt Friday. Spain and Italy were also downgraded.
While Finland, the Netherlands and Luxembourg kept their AAA ratings, they were put on negative watch.
The first gauge of the report’s impact will come Jan. 16 when France sells as much as €8.7 billion ($11 billion) in bills.
“In our view, the policy initiatives taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone,” S&P said in a statement.
While France’s downgrade might make it harder for the eurozone’s bailout fund to raise money in financial markets, the immediate impact on French and Italian bond yields was muted.
“I’m not convinced that the downgrades will have a massive market impact,” said Jonathan Loynes, chief European economist at Capital Economics. “It does further underline the fact that the fiscal crisis is no longer confirmed just to the small peripheral economies.”
European leaders are struggling to tame a crisis now in its third year and to convince investors they can restore budget order. Greece’s creditors Friday suspended talks with its government without an agreement over how much money investors will lose by swapping the nation’s bonds, increasing the risk of the eurozone’s first sovereign default.
The euro on Friday fell to its weakest in 16 months against the dollar, declining to $1.2665. The yield on Germany’s benchmark 10-year bund slipped seven basis points to 1.759% and earlier touched a record low.
Regional finance ministers sought to play down S&P’s decision or turn it to their advantage as European leaders prepare to meet for the first time this year on Jan. 30.
“It’s not a catastrophe,” French Finance Minister Francois Baroin told France 2 television, noting his country now has the same rating as the U.S.
Wolfgang Schaeuble, his German counterpart, said the shifts vindicated governments’ decision last month to bring forward a permanent bailout fund to this year from 2013 and strengthened Germany’s determination to stabilize the euro region by instilling stricter budget discipline.
“We know that there’s uncertainty with respect to the euro area,” he said.