Standard & Poor’s on Monday lowered its outlook on the European Financial Stability Facility (EFSF), the fund created for bailing out debt-laden eurozone countries.
While the EFSF’s actual rating was affirmed at AA+, its long-term outlook was lowered to negative from developing. That means the rating could be lowered in the next two years.
S&P cut the funding mechanism’s rating below AAA in January.
S&P said the downward revision was due partly to the shifting creditworthiness of countries such as France and Austria that fund the EFSF. France and Austria saw their credit ratings cut earlier this year due to their exposure to countries such as Greece that are potentially facing default.
“We have concluded that credit enhancements sufficient to offset what we view as the reduced creditworthiness of European Financial Stability Facility (EFSF) guarantors are not likely to be forthcoming,” the rating firm said in statement.
The ESFS was established in 2010 in response to credit problems in a handful of small eurozone countries, namely Portugal, Italy, Ireland and Greece. So far the fund has been used for bailouts to Ireland and Greece.
Credit ratings are important because they help determine the rates at which banks lend money The bigger the risk posed by a borrower the lower that borrower’s credit rating. And the lower the credit rating the more expensive it is for that entity to borrow.