Spain credit rating downgraded ahead of G20 meeting: live

Standard & Poor’s has downgraded the eurozone’s fourth largest economy by one notch 8.58am: UBS global chief economist Paul Donovan is not convinced today’s G20 summit will solve the debt crisis. Here are a few highlights from his comments published this morning: The G20 finance ministers gather together to drink champagne, consume foie gras, and spend taxpayers’ money on flights to Paris. There is some chatter of agreeing further assistance for the IMF. Agreement is unlikely now (maybe later). Agreeing substantive policies is not what the G20 is for. Donovan is not pinning his hopes on the European Central Bank’s leadership either: The ECB’s Trichet has demonstrated the dangers of having a non-economist running a central bank by declaring that the ECB should be lender of last resort. Of course the ECB should be lender of last resort. That is the function of a central bank. This is economics 101. (Trichet retires in two weeks). In conclusion, despite Slovakia’s approval of a strengthened European Financial Stability Facility, he feels a solution is some way off: Slovakia has approved EFSF version 2.0. This still does not do the job, however, and we need to reboot and upgrade. Banking recapitalisation is still necessary – helping those countries that can not (or will not in the future) be able to help their banks. 8.45am: Back to UBS, Fitch has downgraded the bank’s rating from A+ to A, and put seven other European and U.S. banks under review, citing stressed economies and financial markets and regulatory reform. Barclays, Bank, BNP Paribas, Credit Suisse Group, Deutsche Bank, Societe Generale, Bank of America, Morgan Stanley and Goldman Sachs Group have all been put on notice for possible downgrades. Fitch said the cuts would in most cases be one notch, although it could impose two notches in some instances. Michael Hewson, market analyst at CMC Markets, said Europe’s banks would have to take a bigger write down on their sovereign debt holdings than current talk suggests: Today sees the beginning of another G20 finance ministers meeting and they will certainly have a lot to talk about now that Slovakia has finally ratified the EFSF [European Financial Stability Facility] bailout fund changes. Problems still remain and have increased in size since the original July 21st meeting with significant debate about how to recapitalise Europe’s banks as well as increasing the private sector involvement in relation to Greece. There has been talk of haircuts being increased to between 30-50%, a start but still nowhere near big enough. There has also been talk of how to go about making the EFSF bigger in size with widespread disagreement on how to go about this. 8.18am: Good morning and welcome to the live blog with me, Juliette Garside. Today’s focus is on the European debt crisis, with national leaders gathering for the latest G20 talks in Paris, and news of credit rating downgrades for Spain and Switzerland’s UBS bank. The London markets were left unphased by the news, with the FTSE 100 index opening some 10 points higher at 5413. Standard & Poor’s cut Spain’s credit rating this morning, from AA- to AA, sending the euro lower and echoing last week’s move by Fitch. S&P explained its decision to cut the country’s long term rating by pointing to Spain’s high unemployment, tightening credit and high private sector debt. The agency said: Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain’s growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain’s main trading partners. S&P is worried that labour market reforms in the eurozone’s fourth largest economy are incomplete, and that there will be further asset deterioration at its banks. The agency now thinks Spain will see economic growth of just 1% in 2012, down from its February forecast of 1.5%, and warns there may be further downgrades to come. We could lower the ratings again if, consistent with our downside scenario, the economy contracts in 2012, Spain’s fiscal position significantly deviates from the government’s budgetary targets, or additional labour market and other growth-enhancing reforms are delayed. European debt crisis Europe Spain G20 UBS Juliette Garside guardian.co.uk

Posted by on October 14, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.