S&P: Rising Risk of Recession in the Eurozone

Posted January 14th, 2012 at 2:05 pm (UTC-5)
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Credit-rating firm Standard and Poor's says the risk of recession in the eurozone is rising as European leaders fail to agree on a solution to the economic crisis.

S&P outlined its decision to downgrade the credit ratings of nine European countries during a teleconference with reporters on Saturday. S&P credit analyst Moritz Kraemer said S&P is forecasting a 40 percent chance that the eurozone economy will contract by 1.5 percent in 2012.

“The policy response at the European level has in our view not kept up with the rising challenges in the eurozone.”

S&P, one of three worldwide agencies, made the downgrades Friday, saying national leaders are moving too slowly to strengthen the troubled eurozone's finances.

German Chancellor Angela Merkel told reporters Saturday the downgrade was not a surprise and that the European Union has a “long road” ahead to restore investor confidence.

Merkel said the eurozone will speed up implementation of its permanent rescue fund known as the European Stability Mechanism. Germany, which has Europe's largest economy, kept its AAA rating.

France lost its top-tier AAA rating, while Italy and Spain were downgraded by two notches.

Lower credit ratings may raise the cost of borrowing money for those governments.

French Finance Minister Francois Baroin has called the downgrade “bad news,” but not “a catastrophe.” He said ratings agencies would not dictate French economic policies.

In Greece, where the European debt crisis began, a group of private lenders met with government officials Friday but failed to reach an agreement to help reduce the nation's debt.