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Europeans left almost without a weapon to fight with the crisis: following France and Austria, the European Financial Stability Fund lost the highest “AAA” rating as well. This is especially unpleasant news for Germany as it will have to deposit even more money in the fund.
Again, the rating was downgraded by Standard & Poor’s. Europeans are left virtually without a weapon against the crisis: press once used to call the EFSF a financial “bazooka”. However, they (Europe) didn’t have enough time to fill in the fund with money while finding investors with the current “AA+” rating is becoming a more difficult task. S&P explained its decision by the following reasons:
- France and Austria lost their maximum ratings recently, and together with other member states they used to guarantee all obligations of the European Financial Stability Fund.
- Safety was lost for many financial securities of European countries which are currently in the EFSF’s portfolio.
- There are only four safe creditors of the fund with maximum ratings at the moment: Germany, Netherlands, Finland and Luxemburg.
- Outlook for the EFSF is still to be defined by the agency within the next two months – it may be upgraded and downgraded, it is yet to be decided.
- For example, more active participation of those four countries with maximum ratings may increase the fund’s rating.
- On the contrary, the fund’s rating outlook will be decreased if some of the four loses its maximum rating or, for example, France’s and Austria’s ratings are downgraded even further.
The European Financial Stability Fund was created in May 2010 in the heat of the Greek crisis. Its main function is to provide credits to European countries, but with time those functions were expanded. For example, the EFSF may now repurchase debt securities on primary and secondary financial markets to decrease overall cost of debt. It may also help banks and other financial entities.
Source: GAAP-IFRS.COM
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