S&P Warns on Eurozone Rating Downgrade

Italy's new Prime Minister Mario Monti gives a press conference at the EU headquarters in Brussels, on Nov. 30. Monti warned the eurozone would have no room for error at next week's summit as markets would 'sanction' any mistake the very next day, and S&P warned on Tuesday that it has placed 15 eurozone nations on “credit watch negative” for possible downgrades. (John Thys/AFP/Getty Images)

NEW YORK—Credit rating agency Standard & Poor’s warned on Tuesday that it has placed 15 eurozone nations on “credit watch negative” for possible downgrades.

The New York-based agency said that the 15 nations were placed under review and even the eurozone’s two biggest economies—France and Germany—could see their credit ratings downgraded. In addition, S&P said that the euro-area bailout fund could also find its AAA-rating downgraded if its member nations experience credit downgrades.

The move was “prompted by our belief that systemic stresses in the eurozone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the eurozone as a whole,” S&P said in an announcement according to its website.

“Continuing disagreements among European policymakers on how to tackle the immediate market confidence crisis,” was among the reasons cited by S&P.

The eurozone has six AAA-rated nations, including France, Germany, Austria, Finland, Luxembourg, and the Netherlands. Italy (rated A) and Spain (rated AA-) were also on watch for possible downgrade, while Greece was not included in the downgrade review.

The announcement came after German Chancellor Angela Merkel and French President Nicolas Sarkozy met to push for rewriting the European Union’s governing rules to encourage tighter cooperation in fiscal and economic matters across EU nations. Analysts say that the warning was issued for European politicians, who have an upcoming two-day summit in Brussels, that any inaction or inadequate action would have dire consequences. “The truth is that markets in the whole world right now don’t trust the euro area at all,” Wolfgang Schauble, German finance minister, said in a Bloomberg report.

Any downgrade could elicit a further backlash from European politicians, who argued that S&P’s last round of downgrades worsened an already fragile financial landscape in Europe. Further, a downgrade of its bailout fund could mean that it would cost much more for the eurozone in future bailouts.

Investors are anxiously waiting for results of the latest summit, which will conclude on Friday, for additional guidance and hope that the 17 member nations will announce more concrete and specific measures to tackle the sovereign debt issue.