The actions would be the strongest signal yet that Europe’s sovereign debt woes were far from over and would pose fresh political challenges for politicians, including President Nicolas Sarkozy of France, as they try to stabilize the problems on the Continent, now in their third year.
A downgrade by a single ratings agency would have an immediate, though not devastating, impact on the countries. S.P. warned in December that the agency was reviewing 15 European Union countries for lower ratings because of the crisis. Germany and the Netherlands, which were on the original list, were not expected to receive a downgrade Friday, news agencies reported.
The rumors came at the end of a week in which Prime Minister Mario Monti of Italy and Mr. Sarkozy warned that the crisis could deepen if steps were not taken to stoke growth. Both delivered their messages to Chancellor Angela Merkel in her offices in Berlin, prompting the German leader to admit for the first time that the harsh program of austerity she has been pushing on the euro zone was not a cure-all for the crisis.
S. P. issued its warning last month after all three leaders held an emergency European summit meeting aimed at establishing a consensus for better fiscal discipline in the euro monetary union.
But the bid to reassure the financial markets about the European Union’s resolve quickly fizzled, as investors fretted that the years-long efforts to strengthen the foundations of the euro currency club could be overwhelmed in the meantime by a looming recession in most of Europe.
In addition to France, S. P. last month named Germany, the Netherlands, Austria, Finland and Luxembourg as countries that could lose their AAA rating. Last summer, Standard Poor’s lowered the AAA rating of United States long-term debt by one notch, citing a threat to America’s finances from political gridlock in Washington.
A downgrade would make it costlier for each country to pay down its debt, as investors demand that the government pay higher borrowing costs to compensate for the loss of its risk-free status.
In addition, the new European rescue fund, the European Financial Stability Facility, which is designed to prevent the contagion from spreading to large countries like Italy and Spain, would likely see its borrowing costs rise. France is one of its major financial backers, and if the country is downgraded, that could make the fund less effective in stemming the euro crisis.
Steven Erlanger contributed reporting.
Article source: http://feeds.nytimes.com/click.phdo?i=2480446208534edf2ea916a9b7be90a3
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