S&P Warns of Euro Zone Downgrades if Recession Recurs

He was quoted saying in a Dublin speech, “With so much at stake, one would expect that some accommodation can be found between euro zone monetary authorities and national policy makers that balances substantive government policy actions with more aggressive steps by the ECB to counter a renewed economic downturn. Such steps of course would entail closer policy coordination and a redoubled political commitment at the euro group and EU levels.”

However, such a belief notwithstanding, he is not optimistic about the future of the bloc’s credit ratings. About those he said, “The financial dynamics unleashed by the ongoing confidence crisis, in Standard & Poor’s view, have heightened the risk of renewed recession in a growing number of euro zone members that potentially could put additional downward pressure on (the) euro area’s sovereign ratings.” He added, “This risk, I regret to say, looks unlikely to diminish quickly. As and when a broad-based recovery takes hold in the euro zone, past experience suggests that the pace of economic growth will underperform relative to past trends.”