Immediately on heels of Merkel-Sarkozy summit to herald a new course for the EU and Eurozone via treaty modification/amendment and close fiscal union, S&P (Standard & Poor’s) announced on December 5, 2011 that 15 countries, including Germany and France, of the 17 Eurozone members were being placed on “Credit Watch Negative.” This is not a formal downgrade which would be symbolically and practically costly to the Eurozone and particularly the AAA rated German and French sovereign image. However, it indicates a negative trend and reasonable risk of downgrade, (usually by one notch and in this instance to AA+). The US has already been downgraded to AA+ by S&P this summer for similar considerations – more about political ineptness rather than the numbers or current deficit. (Read: - “US Downgrades US Debt” - diplomaticallyincorrect.org/films/blog_post/sp-downgrades-us-debt-by-ambassador-mo/33202). In my opinion the risk of eventual downgrade is real. Even if Merkel and Sarkozy have reached general political agreement to move ahead with changes in the EU/Eurozone structure that will deliver greater fiscal discipline and integration, the details are still lacking. The March 2012 deadline is not for implementation but just working out such details. Ratification and implementation could last for years – US and EU leaders have already tried to dampen expectations, for fear of boomerang, by speaking of a long and multiyear process of bringing the Eurozone back to health. It is not at all clear that the other EU and/or Eurozone members will go along with the “Merkozy” ideas or that some will not look to extract their own concessions (UK if broader EU treaty actions becomes required). Neither the methodology nor outcome are certain. The ECB (European Central Bank) is conspicuously absent from the new plans. Think it has become evident that neither “Eurobonds” nor full backstop from Germany/ECB would pass muster from S&P.(Think that Chancellor Merkel already had this indication a month earlier – it is frequent practice that rating agencies would signal issuers, particularly sovereign governments of potential downgrades and the rationale. (Read: “ECB & Germany Dragged Down by Euro Crisis?” - diplomaticallyincorrect.org/films/blog_post/ecb-germany-dragged-down-by-eurozone-crisis-by-ambassador-mo/42045). Thus whether Germany was willing or not, and it was more not, a quick solution backstopped by Germany and the ECB was not possible and the more complicated and considerably longer track of treaty change is necessary. The announcement that the EFSF (European Financial Stability Facility has also been placed on Credit Watch Negative highlights the ineptness/inadequacy of efforts so far to resolve the “Eurocrisis” and why a more profound structural track is necessary. As has been pointed out, it will take time. This also provides opportunity for all sorts of “faux pas.” (Read: -“Eurozone Celebrations Premature?” -http://diplomaticallyincorrect.org/films/blog_post/eurozone-celebrations-premature-by-ambassador-mo/42314). Further, the austerity becomes a worse enemy along with delays and uncertainty. Sluggish growth in Europe, (even as compared to the US), is a likely byproduct and for an extended term. (We have held the view that Eurozone has greater structural problems and prospects for a more extended and deeper economic downward drift with Euro also at greater chance of depreciation. Read: -“Is Eurozone or US in Greater Financial Turmoil”?” - diplomaticallyincorrect.org/films/blog_post/is-eurozone-or-us-in-greater-financial-turmoil-by-ambassador-mo/41996 In my educated estimate, the risk for downgrade is real and perhaps more likely than not. S&P List (The Second Rating as “A1+” is short-term or commercial paper rating. Also Link at – www.standardandpoors.com/ratings/articles/en/us/?articleType=HTML&assetID=1245325249443). ---Austria (Republic of) Sovereign Credit Rating AAA/Watch Neg/A-1+ AAA/Stable/A-1+ ---Belgium (Kingdom of) Sovereign Credit Rating AA/Watch Neg/A-1+ AA/Negative/A-1+ ---Finland (Republic of) Sovereign Credit Rating AAA/Watch Neg/A-1+ AAA/Stable/A-1+ ---France (Republic of) Sovereign Credit Rating AAA/Watch Neg/A-1+ AAA/Stable/A-1+ ---Germany (Federal Republic of) Sovereign Credit Rating AAA/Watch Neg/A-1+ AAA/Stable/A-1+ ---Luxembourg (Grand Duchy of) Sovereign Credit Rating AAA/Watch Neg/A-1+ AAA/Stable/A-1+ ---Netherlands (The) (State of) Sovereign Credit Rating AAA/Watch Neg/A-1+ AAA/Stable/A-1+ Long- and short-term ratings on CreditWatch negative ---Estonia (Republic of) Sovereign Credit Rating AA-/Watch Neg/A-1+ AA-/Stable/A-1+ ---Ireland (Republic of) Sovereign Credit Rating BBB+/Watch Neg/A-2 BBB+/Stable/A-2 ---Italy (Republic of) Sovereign Credit Rating A/Watch Neg/A-1 A/Negative/A-1 ---Malta (Republic of) Sovereign Credit Rating A/Watch Neg/A-1 A/Stable/A-1 ---Portugal (Republic of) Sovereign Credit Rating BBB-/Watch Neg/A-3 BBB-/Negative/A-3 ---Slovak Republic Sovereign Credit Rating A+/Watch Neg/A-1 A+/Positive/A-1 ---Slovenia (Republic of) Sovereign Credit Rating AA-/Watch Neg/A-1+ AA-/Stable/A-1+ ---Spain (Kingdom of) Sovereign Credit Rating AA-/Watch Neg/A-1+ AA-/Negative/A-1+ Short-term ratings on CreditWatch negative, long-term ratings still on CreditWatch negative ---Cyprus (Republic of) Sovereign Credit Rating BBB/Watch Neg/A-3 BBB/Watch Neg/A-3 By Ambassador Muhamed Sacirbey Facebook – Become a Fan at “Diplomatically Incorrect”

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