Of course the news would come on Friday the 13th.
After a day of leaks and rumors, Standard & Poor's Ratings Services made it official late this afternoon. The credit-rating agency is stripping unlucky France of its AAA credit rating, knocking it down by one notch to AA+.
Also getting knocked down one notch each were Austria, Malta, Slovakia and Slovenia.
S&P gave even worse news to Italy, Spain, Cyprus and Portugal, marking down their debt ratings by two notches each. That downgrade kicked Cyprus and Portugal all the way to "junk" status, where Greece already resides. Ouch.
Those that escaped a downgrade included Germany, Belgium, Ireland, Finland, the Netherlands, Luxembourg and Estonia.
S&P issued a statement saying it lowered the credit ratings because it had determined that "the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone."
Earlier in the day, French Finance Minister François Baroin admitted the downgrade was coming, but S&P itself waited until after the markets closed at 4 pm ET in this country to make the formal announcement.
Baroin said France's debt problem is now pointed in the right direction, and added that his country would not allow a ratings agency to dictate fiscal policies.
Le Monde, a major French newspaper, reported that Marine Le Pen, leader of France's far-right National Front (FN) party, predicted the loss of France's AAA rating would be "the first step in the breakup of the euro area".
In recent weeks, European leaders have been scrambling to find ways to cope with the problem of too much debt in too many countries. They have managed to hold off any major banking crises, but have not taken any steps bold enough to convince credit raters that all defaults can be avoided.
Friday's downgrade news suggested European political leaders still have a long way to go to clean up massive debt troubles and get the European Union's economy growing again. For France's President Nicolas Sarkozy, the downgrade was an embarrassment that could diminish his chances for re-election this year.
Typically, a credit downgrade — even by just one rating agency — would hurt a country's ability to borrow money cheaply. Investors demand higher interest payments when risks are greater, so no country wants to have anything but the highest rating.
But gauging exactly how much this downgrade will hurt European countries is not exactly clear. Last August, S&P cut the United States' AAA rating for long-term debt by one notch — but interest rates did not shoot up on U.S. debt.
Whether investors go as easy on the European countries remains to be seen as they issue new bonds in coming weeks and months.
Baroin, speaking on French television, said the S&P action was "not good news." But he added that given how many other countries are having debt troubles, the downgrade was "not a catastrophe."
Although the official S&P announcement came after U.S. markets closed, Baroin's statements had been made while trading was still in progress in this country . The reaction was muted. In the end, the Dow Jones industrial average fell only 48.96 to 12,422.06. The value of the euro tumbled Friday to a new 16-month low against the dollar.
We live blogged the news as it happened. Read below for a blow-by-blow look. Note that we re-wrote the top of this post to reflect the news.
Update at 5:15 p.m. ET. What Happens Now?:
As we said when the United States' credit rating was cut in August, it's unclear how this cut will affect the Eurozone. But one thing to watch, reports the Wall Street Journal, is a Treasury bill auction the eurozone bailout organization known as the European Financial Stability Facility plans to hold on Tuesday.
Update at 5:13 p.m. ET. Good News For Five Countries:
The S&P also announced it affirmed the ratings of Germany, the Netherlands, Belgium, Estonia, Finland, Ireland and Luxembourg.
Update at 5:06 p.m. ET. Austerity Not Enough:
Reading deeper into the S&P announcement, it's clear the ratings agency is unhappy with the steps taken by European countries to curb the sovereign debt crisis. In short, it says austerity measures are not enough.
"We believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues," the S&P said.
Update at 4:55 p.m. ET. Lowering Ratings On Nine Sovereigns:
The S&P has made their cuts to France official and has added eight other European countries to the list. From their press release:
"We have lowered the long-term ratings on Cyprus, Italy, Portugal, and Spain by two notches; lowered the long-term ratings on Austria, France, Malta, Slovakia, and Slovenia, by one notch; and affirmed the long-term ratings on Belgium, Estonia, Finland, Germany, Ireland, Luxembourg, and the Netherlands."
Update at 4:23 p.m. ET. Downgrade 'Long Overdue':
Our Newscast unit just spoke to Peter Morici, an economist and professor of business at the University of Maryland. Morici said this downgrade "was long overdue."
Essentially he said, France has a "systemic risk." With the Euro, the northern countries have flourished, said Morici. In fact, he said if France was valued using its own currency it wouldn't be worth as much. So, now, as the southern European countries face defaulting and the risk of a eurozone split becomes real, any advantage the Euro gives France is gone.
"[The downgrade] is not the end of the world," said Morici. "But it is an indication that the stability and opportunity for growth promised by the creation of the Euro have not come to fruition."
Update at 4:03 p.m. ET. France's National Politics:
French President Nikolas Sarkozy is facing an election. This downgrade will no doubt have an effect on its politics. The Wall Street Journal's Angelique Chrisafis reports from Paris:
"With less than 100 days until the first round of the French presidential race, the credit-rating downgrade in Paris will seriously complicate Nicolas Sarkozy's already difficult bid for re-election.
"'If France loses its AAA, I'm dead,' Sarkozy told aides in October, according to Le Canard Enchaîné. The president has staked his re-election on convincing France that he is the only person with the guts, strength and character to save it from economic doom. The rating cut will seriously dent his image as the Caped Crusader of the financial world."
Update at 3:11 p.m. ET. Shouldn't 'Overrate The Assessments':
Quoting an interview on German television, The Wall Street Journal reports Germany's Finance Minister Wolfgang Schaeuble tried to minimize the significance of a downgrade saying, "In recent months, we have grown to agree world-wide that we shouldn't overrate the assessments of rating agencies. It's not new that there is a great uncertainty in financial markets regarding the euro zone."
Update at 3:09 p.m. ET. Rating The Same As The U.S.:
It's worth noting that a AA+ rating is the same S&P has assigned to the United States.
Update at 3:05 p.m. ET. 'Like Most Of The Eurozone':
In his interview with France 2, Baroin also said France's rating had been lowered one notch "like most of the eurozone."
The AP points out that there is no confirmation from S&P that any other European country has been downgraded. The Guardian runs through what that may mean:
"Of the 17 members of the eurozone, 15 were warned by S&P last month that they could be downgraded. We've heard strong denials from Germany, Finland, the Netherlands and - in the last few minutes - Ireland.
"That leaves ten on the table — Austria, Belgium, Luxembourg,Estonia, Italy, Malta, Portugal, Slovakia, Slovenia and Spain."
Update at 2:56 p.m. ET. The Markets:
As we've said, this announcement was widely expected, so the markets don't seem to be reacting dramatically. The Dow, Nasdaq and the S&P were down less than 0.75 percent.
The AFP reports on the European markets:
"European markets had expected the downgrade, which was widely reported during the day even if Standard and Poor's were not expected to confirm it until later in the evening, and stocks only slid back slightly.
"But the single currency itself was rocked by the news, which coincided with a breakdown in talks to agree a Greek debt writedown, and the euro slipped to 16-month lows against the dollar."
Update at 2:50 p.m. ET. AA Or AA+?
The AP is reporting that S&P cut the rating to AA, but several other news sources, including the Wall Street Journal, The Guardian and France 24, are reporting it's been cut to AA+. We're going with AA+ for now. But we'll revise if we need to.
Update at 2:35 p.m. ET. Rating Cut 'Isn't A Catastrophe':
The Wall Street Journal, which is running a live blog on the news, reports that François Baroin, France's finance minister, sought to minimize the effect the downgrade may have on the country and the eurozone.
In an interview with television station France 2, he said ratings "don't dictate French politics."
"Of course we would have preferred to keep our Triple A credit rating," Baroin said.
Update at 2:25 p.m. ET. No Confirmation From S&P:
NPR's Marilyn Geewax reports S&P has not yet confirmed the downgrade, but it is widely expected they will make an announcement at 4 p.m. ET., after the markets close.
This news was not unexpected. In December, Fitch, another of the major credit rating agencies, assigned France's sovereign debt a negative outlook.
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