(eToro Blog) Following Standard & Poor’s downgrade en masse of the Eurozone’s more vulnerable and fiscally-troubled states, a new announcement from S&P confirms investors and analysts’ fears: the Eurozone’s bailout facility will be detrimentally affected. According to the Sovereign Debt Committee Chairman at S&P, John Chambers, the downgrades of France, Austria (to AA+), Italy (to BBB+) and a whole host of other Eurozone states will require a modification to the credit rating of the European Financial Stability Facility (EFSF). The EFSF’s credit rating is based upon the guarantees of the member states, primarily, those AAA rated.
With the downgrades of France and Austria, only Germany, the Netherlands, Finland and Luxembourg have been able to retain their AAA rating. But S&P warns that, with the exception of Germany, the other AAA-rated countries are still on S&P’s watch list for a negative outlook. Mr. Chambers said that a review of the EFSF would likely be announced by early March, but that history has suggested it might even come as soon as this week.
He believes that a decision will have to be made by the Eurozone’s leadership on how best to preserve the EFSF’s credit rating. Options, however, appear limited; the EFSF will either have to scale back its lending program or the remaining AAA-states will need to provide additional guarantees. Alternatively, cash buffers could be introduced. Over the weekend, German Chancellor Angela Merkel said that the S&P downgrades confirmed her conviction that they (the Eurozone members) have a long way to go before investor confidence is returned. The E.U.’s finance ministers confirmed too that they would make every effort to ensure the EFSF maintains its top credit rating.
As can be expected, the Euro is under significant pressure, and is currently trading lower at 1.2648. Sentiment among eToro’s traders for the EUR/USD pair is predominantly bearish. Among the leaders on OpenBook, trader pyruss appears to be finding a way to take advantage and profit from the uncertainty, opening and closing several short positions in the pair.
Copyright 2012 eToro Blog
