Monday, January 16, 2012

Friday the 13th

On Friday, the eurozone crisis lurched into fresh turmoil when nine Eurozone countries – France, Austria, Italy, Spain, Cyprus, Portugal, Slovakia, Slovenia and Malta – had their credit ratings hacked. Standard & Poor's was the one which wielded the axe.

Credit ratings agencies assign grades – credit ratings – to countries, institutions and companies that need to borrow money, to help lenders gauge the risk they are taking. Essentially, the lower the rating from a ratings agency, the higher the interest a borrower has to pay to compensate for the possibility of it defaulting.

And so, when France – with debts of £1.4 trillion – lost its triple-A credit rating, it was a humiliation of sorts. But it was also a wake-up call for leaders across Europe that the carefully constructed bailout package they announced to great fanfare in December has comprehensively fallen apart.

Italy – one of the biggest EU economies – is also not faring any better. Its already flaky debt standings were slashed two points by S&P’s, placing it delicately just above junk status. If it defaults on crippling debts, the euro would be pushed to the brink of collapse.

Europe is having the shakes and the rest of the world can only look on anxiously.

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