S&P sets out stance on EU downgrades


STANDARD & Poor’s will probably lower the credit standing of five European nations, including Ireland and AAA-rated France, by one or two notches if Europe slips into recession and government borrowings increase, the ratings agency said in a report.

The stress-test report assesses the capacity of the European Union and the International Monetary Fund to support the euro zone under two possible scenarios: a double-dip recession and a recession with high interest rates.

“Sovereign ratings on France, Spain, Italy, Ireland and Portugal likely would be lowered by one or two notches under both scenarios,” said SP in the report.

A worst-case economic scenario would also be likely to prompt the recapitalisation of numerous banks in Spain, Italy and Portugal, SP said, adding that current support mechanisms may not be sufficient if conditions deteriorated beyond expectations.

“France would likely be downgraded to AA+ from AAA because of a deteriorating fiscal position, even if the amount of stress applied remains modest,” SP analysts said.

“These stress scenarios are not our central expectation but a simulation of the possible outcomes if such hypothetical events were to occur,” said an SP spokeswoman. – (Reuters)