Standard & Poor’s on Friday will reportedly downgrade the debt of a handful of large European countries, including France and Austria.
The move has been rumored for weeks, but will nevertheless be viewed as a troubling development to the long-running European debt crisis.
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Bloomberg News reported that an announcement from S&P is due at 3 p.m. EST. S&P did not immediately respond to a request for comment.
A crisis that began more than two years ago in Greece, and was viewed for a long time as a problem that could be contained to Europe’s smaller, less significant economies, has now impacted the once-healthy economies of France and Austria.
Both countries are expected to have their credit downgraded a single notch, from the coveted AAA rating to AA+.
In December, citing “systemic stresses” to the European financial system, S&P placed the ratings of 15 euro zone countries including France and Germany on credit watch negative. The ratings firm said then it would review each country and make a decision within three months.
Germany, by far the strongest economy in Europe, was not included in the S&P downgrade. Neither was the Netherlands, according to various reports.
Peter Tchir, an analyst with TF Market Advisors in Connecticut, said the expected downgrades are likely to have a significant impact on global markets despite the move being widely anticipated.
“I think this is a bigger deal than people are making it out to be,” said.
Tchir said he’s concerned that a downgrade of France means that any bailout mechanism created in Europe in recent months to stave off default by troubled economies has also been downgraded because of that mechanism’s dependence on France and other healthier eurozone economies.
Specifically, the European Financial Stability Facility, a bailout fund financed by members of the eurozone, is authorized to borrow up to 440 billion in euros to help countries struggling with heavy debt burdens and threatened with default. A downgrade would make it more expensive for France to borrow, which means it will also be more expensive for the EFSF to borrow.
France is the second largest guarantor of the EFSF, which currently has a AAA rating, according to Reuters.
Tchir said markets shouldn’t be surprised by the move. Since the downgrades were first rumored last fall Europe has taken few if any significant steps toward a resolution of the sovereign debt crisis. To the contrary, dithering and squabbling among Europe’s political leaders has allowed the problem to spread and intensify.
“Very little progress has been made, and lots of negatives have come out,” said Tchir.