The Real Dark Horse - S&P's Mass Downgrade FAQ May Have Just Hobbled The European Sovereign Debt Market

Tyler Durden's picture




 

All your questions about the historic European downgrade should be answered after reading the following FAQ. Or so S&P believes. Ironically, it does an admirable job, because the following presentation successfully manages to negate years of endless lies and propaganda by Europe's incompetent and corrupt klepocrarts, and lays out the true terrifying perspective currently splayed out before the eurozone better than most analyses we have seen to date. Namely that the failed experiment is coming to an end. And since the Eurozone's idiotic foundation was laid out by the same breed of central planning academic wizards who thought that Keynesianism was a great idea (and continue to determine the fate of the world out of their small corner office in the Marriner Eccles building), the imminent downfall of Europe will only precipitate the final unraveling of the shaman "economic" religion that has taken the world to the brink of utter financial collapse and, gradually, world war.

Here are the key take home messages from the FAQ (source):

  • We believe that as long as uncertainty about the bond buyers at primary auctions remains, the risk of a deepening of the crisis remains a real one. These risks could be exacerbated should renewed policy disagreements among European policymakers emerge or the Greek debt restructuring lead to an outcome that further discourages financial investors to add to their positions in peripheral sovereign securities.
  • The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements from policymakers, lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems. According to our assessment, the political agreement reached at the summit did not contain significant new initiatives to address the near-term funding challenges that have engulfed the eurozone.
  • Instead, it focuses on what we consider to be a one-sided approach by emphasizing fiscal austerity without a strong and consistent program to raise the growth potential of the economies in the eurozone.
  • Financial solidarity among member states appears to us to be insufficient to prevent prolonged funding uncertainties. Specifically, we believe that the current crisis management tools may not be adequate to restore lasting confidence in the creditworthiness of large eurozone members such as Italy and Spain. Nor do we think they are likely to instill sufficient confidence in these sovereigns' ability to address potential financial system stresses in their jurisdiction. In such a setting, the prospects of effectively intervening in the feedback loop between sovereign and financial sector risk are in our opinion weak.
  • Despite these encouraging developments on domestic policy, we downgraded both sovereigns by two notches. This is due to our opinion that Italy and Spain are particularly prone to the risk of a sudden deterioration in market conditions.
  • While we see a lack of fiscal prudence as having been a major contributing factor to high public debt levels in some countries, such as Greece, we believe that the key underlying issue for the eurozone as a whole is one of a growing divergence in competitiveness between the core and the so-called "periphery."
  • We believe that the risk of a credit crunch remains real in a number of countries as economic conditions weaken and banks continue to consolidate their balance sheets in light of tighter capital requirements and poor market conditions in which to raise additional equity
  • We estimate a 40% probability that a deeper and more prolonged recession could hit the eurozone, with a likely reduction of economic activity of 1.5% in 2012.
  • We believe an even deeper and more prolonged slump cannot be entirely excluded. We expect this weak macroeconomic outlook if realized would complicate the implementation of budget plans, with slippages to be expected, which would likely further dampen confidence and potentially deepen the recession, as funding and credit is curtailed and the private sector increases precautionary savings.
  • Reports indicate that many investors had hoped that a breakthrough at the December summit would have enticed the ECB to step up its direct government bond purchases in the secondary market through its Security Market Program (SMP). However, these hopes were quickly deflated as it became clearer that the ECB would prefer to provide banks with unlimited funding, partly with the expectation that those liquid funds in banks' balance sheets would find their way into primary sovereign bond auctions. This indirect way of supporting the sovereign bond market may yet be successful, but we believe that banks may remain cautious when being faced with primary sovereign offerings, as most financial institutions have aimed at shrinking their balance sheets by running down security portfolios in order to comply with higher capital requirements, which become effective in 2012.

Shockingly, S&P dares to challenge not only the status quo, but "powerful national interest groups" - easily the first time we have seen something like this out of a "status quo" organization, let alone a rating agency.

  • Governments are also aiming to put greater focus on growth-enhancing structural measures. While these may contribute positively to a lasting solution of the current crisis, we believe they could also run counter to powerful national interest groups, whose resistance could potentially jeopardize the reform momentum and impede the recovery of market confidence.

Why it is all a Catch 22 and why the LTRO "carry trade" has failed:

  • Recent Italian and other primary auctions suggest to us, however, that banks and other investors may still only be willing to lend longer term to governments facing market pressure if they are offered interest rates that, all other things being equal, will make fiscal consolidation harder to achieve.

Let's not forget the EFSF:

  • We are currently assessing the credit implications of today's eurozone sovereign downgrades on those institutions and will publish our updated credit view in the coming days.

And probably the most important observation of the night:

  • As we noted previously, we expect eurozone policymakers will accord ESM de-facto preferred creditor status in the event of a eurozone sovereign default. We believe that the prospect of subordination to a large creditor, which would have a key role in any future debt rescheduling, would make a lasting contribution to the rise in long-term government bond yields of lower-rated eurozone sovereigns and may reduce their future market access.

The S&P itself warns that the entire basis of the European bailout will create a split market in sovereign bonds, in which pari passu treatment will be a thing of the past, and in which buyers will have no clue what treatment awaits them in a worst case scenario. If anyone thought that ISDA's idiotic attempt to kill the CDS market caused a collapse in demand for sovereign paper, just wait until potential buyers comprehend they could be primed every step of the way and the market is effectively two tier.

S&P may have just killed the European sovereign market by saying out loud what only "fringe bloggers" dared suggest in the past.

From S&P

FRANKFURT (Standard & Poor's) Jan. 13, 2012--Standard & Poor's Ratings Services today completed its review of its ratings on 16 eurozone sovereigns, resulting in downgrades for nine eurozone sovereigns and affirmations of the ratings on seven others.

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, the Slovak Republic, and Slovenia, by one notch; and affirmed the long-term ratings on Belgium, Estonia, Finland, Germany, Ireland, Luxembourg, and the Netherlands. All ratings on the 16 sovereigns have been removed from CreditWatch where they were placed with negative implications on Dec. 5, 2011 (except for Cyprus, which was first placed on CreditWatch on Aug. 12, 2011).

The outlooks on our long-term ratings on all but two of the 16 eurozone sovereigns are negative; the outlooks on the long-term ratings on Germany and Slovakia are stable. See "Standard & Poor's Takes Various Rating Actions On 16 Eurozone Sovereign Governments," published today for full details.

This report addresses questions that we anticipate market participants might ask in connection with our rating actions today.

WHAT HAS PROMPTED THE DOWNGRADES?

Today's rating actions are primarily driven by our assessment 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. In our view, these stresses include: (1) tightening credit conditions, (2) an increase in risk premiums for a widening group of eurozone issuers, (3) a simultaneous attempt to delever by governments and households, (4) weakening economic growth prospects, and (5) an open and prolonged dispute among European policymakers over the proper approach to address challenges.

The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements from policymakers lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems. In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures.

We also believe that the agreement is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the EMU's core and the so-called "periphery". As such, 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.

Accordingly, in line with our published sovereign criteria, we have adjusted downward our political scores (one of the five key factors in our criteria) for those eurozone sovereigns we had previously scored in our two highest categories. This reflects our view that the effectiveness, stability, and predictability of European policymaking and political institutions have not been as strong as we believe are called for by the severity of a broadening and deepening financial crisis in the eurozone.

In addition to our assessment of the policy response to the crisis, downgrades in some countries have also been triggered by external risks. In our view, it is increasingly likely that refinancing costs for certain countries may remain elevated, that credit availability and economic growth may further decelerate, and that pressure on financing conditions may persist. Accordingly, for those sovereigns we consider most at risk of an economic downturn and deteriorating funding conditions, for example due to their large cross-border financing needs, we have adjusted our external score downward.

WHY WERE SOME EUROZONE SOVEREIGNS DOWNGRADED BY TWO NOTCHES AND OTHERS BY ONE NOTCH?

We believe that not all sovereigns are equally vulnerable to the possible extension and intensification of the financial crisis. Those we consider most at risk of an economic downturn and deteriorating funding conditions, for example due to the large cross-border financing needs of its governments or financial sectors, have been downgraded by two notches, as we lowered the political score and/or the external score reflecting our view of the risk of a marked deterioration in the country's external financing.

On the other hand, we affirmed the ratings of sovereigns which we believe are likely to be more resilient at their current rating level in light of their relatively strong external positions and less leveraged public and private sectors. These credit strengths remain robust enough, in our opinion, to neutralize the potential ratings impact from the lowering of our political score.

In this context, we would note that the ratings on the eurozone sovereigns remain at comparatively high levels, with only three below investment grade (Portugal, Cyprus, and Greece). Historically, investment-grade rated sovereigns have experienced very low default rates. From 1975 to 2010, the 15-year cumulative default rate for sovereigns rated in investment grades was 1.02%, and 0.00% for sovereigns rated in the 'A' category or higher.

WHY DO THE RATINGS ON MOST OF THESE SOVEREIGNS HAVE NEGATIVE OUTLOOKS?

For those sovereigns with negative outlooks, we believe that downside risks persist and that a more adverse economic and financial environment could erode their relative strengths within the next year or two to a degree that in our view could warrant a further downward revision of their long-term ratings. We believe that the main downside risks that could affect eurozone sovereigns to various degrees are related to the possibility of further significant fiscal deterioration as a consequence of a more recessionary macroeconomic environment and/or vulnerabilities to further intensification and broadening of risk aversion among investors, jeopardizing funding access at sustainable rates. A more severe financial and economic downturn than we currently envisage (see "Sovereign Risk Indicators," published Dec. 28, 2011) could also lead to rising stress levels in the European banking system, potentially leading to additional fiscal costs for the sovereigns through various bank workout or recapitalization programs. Furthermore, we believe that there is a risk that reform fatigue could be mounting, especially in those countries that have experienced deep recessions and where growth prospects remain bleak, which could eventually lead to lower levels of predictability of policy orientation, potentially leading to another downward adjustment of the political score, which might lead to lower ratings.

We believe that important risks related to potential near-term deterioration of credit conditions remain for a number of sovereigns. This belief is based on what we see as the sovereigns' very substantial financing needs in early 2012, the risk of further downward revisions of economic growth expectations, and the challenge to maintain political support for unpopular and possibly more severe austerity measures, as fiscal targets are endangered by macroeconomic headwinds. Governments are also aiming to put greater focus on growth-enhancing structural measures. While these may contribute positively to a lasting solution of the current crisis, we believe they could also run counter to powerful national interest groups, whose resistance could potentially jeopardize the reform momentum and impede the recovery of market confidence. In our view, it also remains to be seen whether European banks will indeed use the ample term funding provided by the ECB (see below) to purchase newly issued sovereign bonds of governments under financial stress. We believe that as long as uncertainty about the bond buyers at primary auctions remains, the risk of a deepening of the crisis remains a real one. These risks could be exacerbated should renewed policy disagreements among European policymakers emerge or the Greek debt restructuring lead to an outcome that further discourages financial investors to add to their positions in peripheral sovereign securities.

For two sovereigns, Germany and Slovakia, we concluded that downside scenarios that could lead to a lowering of the relevant credit scores and the sovereign ratings carry a likelihood of less than one-in-three during 2012 or 2013. Accordingly we have assigned a stable outlook.

HOW DO WE INTERPRET THE CONCLUSIONS OF THE DECEMBER EUROPEAN SUMMIT?

We have previously stated our belief that an effective strategy that would buoy confidence and lower the currently elevated borrowing costs for European sovereigns could include, for example, a greater pooling of fiscal resources and obligations as well as enhanced mutual budgetary oversight. We have also stated that we believe that a reform process based on a pillar of fiscal austerity alone would risk becoming self-defeating, as domestic demand falls in line with consumer's rising concerns about job security and disposable incomes, eroding national tax revenues.

The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements from policymakers, lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems. In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures. Instead, it focuses on what we consider to be a one-sided approach by emphasizing fiscal austerity without a strong and consistent program to raise the growth potential of the economies in the eurozone. While some member states have implemented measures on the national level to deregulate internal labor markets, and improve the flexibility of domestic services sectors, these reforms do not appear to us to be coordinated at the supra-national level; as evidence, we would note large and widening discrepancies in activity and unemployment levels among the 17 eurozone member states.

Regarding additional resources, the main enhancement we see has been to bring forward to mid-2012 the start date of the European Stability Mechanism (ESM), the successor vehicle to the European Financial Stability Fund (EFSF). This will marginally increase these official sources' lending capacity from currently €440bn to €500bn. As we noted previously, we expect eurozone policymakers will accord ESM de-facto preferred creditor status in the event of a eurozone sovereign default. We believe that the prospect of subordination to a large creditor, which would have a key role in any future debt rescheduling, would make a lasting contribution to the rise in long-term government bond yields of lower-rated eurozone sovereigns and may reduce their future market access.

We also believe that the agreement is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the EMU's core and the so-called "periphery." In our opinion, the eurozone periphery has only been able to bear its underperformance on competitiveness (manifest in sizeable external deficits) because of funding by the banking systems of the more competitive northern eurozone economies. According to our assessment, the political agreement reached at the summit did not contain significant new initiatives to address the near-term funding challenges that have engulfed the eurozone.

The summit focused primarily on a long-term plan to reverse fiscal imbalances. It proposed to enshrine into national legislation requirements for structurally balanced budgets. Certain institutional enhancements have been introduced to strengthen the enforceability of the fiscal rules compared to the Stability and Growth Pact, such as reverse qualified majority voting required to overturn sanctions proposed by the European Commission in case of violations of the broadly balanced budget rules. Notwithstanding this progress, we believe that the enforcement of these measures is far from certain, even if all member states eventually passed respective legislation by parliaments (and by referendum, where this is required). Our assessment is based on several factors, including:

  • The difficulty of forecasting reliably and precisely structural deficits, which we expect will likely be at the center of any decision on whether to impose sanctions;
  • The ability of individual member states' elected governments to extricate themselves from the external control of the European Commission by withdrawing from the intergovernmental agreement, which will not be part of an EU-wide Treaty; and
  • The possibility that the appropriateness of these fiscal rules may come under scrutiny when a recession may, in the eyes of policymakers, call for fiscal stimulus in order to stabilize demand, which could be precluded by the need to adhere to the requirement to balance budgets.

Details on the exact content and operational procedures of the rules are still to emerge and -- depending on the stringency of the rules -- the process of passing national legislation may run into opposition in some signatory states, which in turn could lower the confidence of investors and the credibility of the agreed policies.

More fundamentally, we believe that the proposed measures do not directly address the core underlying factors that have contributed to the market stress. It is our view that the currently experienced financial stress does not in the first instance result from fiscal mismanagement. This to us is supported by the examples of Spain and Ireland, which ran an average fiscal deficit of 0.4% of GDP and a surplus of 1.6% of GDP, respectively, during the period 1999-2007 (versus a deficit of 2.3% of GDP in the case of Germany), while reducing significantly their public debt ratio during that period. The policies and rules agreed at the summit would not have indicated that the boom-time developments in those countries contained the seeds of the current market turmoil.

While we see a lack of fiscal prudence as having been a major contributing factor to high public debt levels in some countries, such as Greece, we believe that the key underlying issue for the eurozone as a whole is one of a growing divergence in competitiveness between the core and the so-called "periphery." Exacerbated by the rapid expansion of European banks' balance sheets, this has led to large and growing external imbalances, evident in the size of financial sector claims of net capital-exporting banking systems on net importing countries. When the financial markets deteriorated and risk aversion increased, the financing needs of both the public and financial sectors in the "periphery" had to be covered to varying degrees by official funding, including European Central Bank (ECB) liquidity as well as intergovernmental, EFSF, and IMF loans.

HOW HAS THE EUROPEAN POLICY RESPONSE AFFECTED THE RATINGS?

We have generally adjusted downward our political scores (one of the five key factors in our published sovereign ratings criteria) for those eurozone sovereigns we had previously scored in our two highest categories. This score change has been a contributing factor to the rating actions on the relevant sovereigns cited above. Under the political score, we assess how a government's institutions and policymaking affect a sovereign's credit fundamentals by delivering sustainable public finances, promoting balanced growth, and responding to economic or political shocks. Our political score also captures the potential effect of external organizations on policy settings.

It is our view that the limitations on monetary flexibility imposed by membership in the eurozone are not adequately counterbalanced by other eurozone economic policies to avoid the negative impact on creditworthiness that the eurozone members are in opinion view currently facing. Financial solidarity among member states appears to us to be insufficient to prevent prolonged funding uncertainties. Specifically, we believe that the current crisis management tools may not be adequate to restore lasting confidence in the creditworthiness of large eurozone members such as Italy and Spain. Nor do we think they are likely to instill sufficient confidence in these sovereigns' ability to address potential financial system stresses in their jurisdiction. In such a setting, the prospects of effectively intervening in the feedback loop between sovereign and financial sector risk are in our opinion weak.

HOW DO YOU EXPECT MACROECONOMIC DEVELOPMENTS WILL AFFECT THE REFORM AGENDA?

We believe that the elusiveness of an effective policy response is likely to add to caution among households and investors alike, weighing on the growth outlook for all eurozone members. Our base case still assumes that the eurozone will record moderate growth in 2012 and 2013, i.e. 0.2% and 1%, respectively -- down from 0.4% and 1.2% according to our early December forecast, with a relatively mild recession in the first half of 2012. Nevertheless, we estimate a 40% probability that a deeper and more prolonged recession could hit the eurozone, with a likely reduction of economic activity of 1.5% in 2012. Furthermore, we believe an even deeper and more prolonged slump cannot be entirely excluded. We expect this weak macroeconomic outlook if realized would complicate the implementation of budget plans, with slippages to be expected, which would likely further dampen confidence and potentially deepen the recession, as funding and credit is curtailed and the private sector increases precautionary savings.

WHAT IS YOUR VIEW OF THE LATEST DEVELOPMENTS IN GREECE AND WHAT IMPACT DO THEY HAVE YOUR ANALYSIS?

We did not change the rating on Greece, which had been downgraded to 'CC' in July 2011, indicating our view of the risk of imminent default. Negotiations with bondholders have taken longer than originally anticipated and we believe may now run close to a large redemption of €14.5 billion on March 20, 2012, raising the specter of a disorderly default. Such an event would in our view further complicate the restoration of affordable market access for other sovereigns experiencing market stress. We understand that the main unresolved issues are related to the treatment of holdouts, the participation of official creditors, and the coupon of the new bonds that will be offered (which partly determine the effective recovery, which we continue to expect to lie between 30% and 50%). We do not believe that private-sector involvement will necessarily be a one-off event in the case of the Greek restructuring and would not be sought in possible future bail-out packages in a future case of sovereign insolvency or prolonged loss of market access. All the more so as official lenders are less likely to bear any future losses as their lending will be channeled through the ESM, a privileged creditor that is expected to be senior to bondholders in any future restructuring.

HOW DOES STANDARD & POOR'S VIEW THE ECB's RESPONSE TO DATE?

In our view, the actions of the ECB have been instrumental in averting a collapse of market confidence. We see that the ECB has eased its eligibility criteria, allowing an ever-expanding pool of assets to be used as collateral for its funding operations, and has lowered the fixed rate on its main refinancing operation to 1%, an all-time low. Most importantly in our view, it has engaged in unprecedented repurchase operations for financial institutions. In December 2011, it lent financial institutions almost €500 billion over three years and announced further unlimited long-term funding auctions for early 2012. This has greatly relieved the funding pressure for banks, which will have to redeem over €200 billion of bonded debt (excluding in some jurisdictions sizeable private placements) in the first quarter alone. By lowering the ECB deposit rate to 0.25%, we believe that the central bank has implicitly tried to encourage financial institutions to engage in a carry trade of borrowing up to three-year funds cheaply from the central bank and purchasing high-yielding government bonds. Recent Italian and other primary auctions suggest to us, however, that banks and other investors may still only be willing to lend longer term to governments facing market pressure if they are offered interest rates that, all other things being equal, will make fiscal consolidation harder to achieve.

Reports indicate that many investors had hoped that a breakthrough at the December summit would have enticed the ECB to step up its direct government bond purchases in the secondary market through its Security Market Program (SMP). However, these hopes were quickly deflated as it became clearer that the ECB would prefer to provide banks with unlimited funding, partly with the expectation that those liquid funds in banks' balance sheets would find their way into primary sovereign bond auctions. This indirect way of supporting the sovereign bond market may yet be successful, but we believe that banks may remain cautious when being faced with primary sovereign offerings, as most financial institutions have aimed at shrinking their balance sheets by running down security portfolios in order to comply with higher capital requirements, which become effective in 2012. We believe that the ECB has not entirely closed the door to expanding its involvement in the sovereign bond market but remains reluctant to do so except in more dramatic circumstances. In our view, this reluctance is likely prompted by concerns about moral hazard, the ECB's own credibility (particularly should losses mount), and potential inflation pressures in the longer term. We think it may also be the case that the ECB (as well as some eurozone governments) is concerned that governments' reform efforts would falter prematurely if market pressure subsides.

We believe that the risk of a credit crunch remains real in a number of countries as economic conditions weaken and banks continue to consolidate their balance sheets in light of tighter capital requirements and poor market conditions in which to raise additional equity. However, the monetary policy actions described above may mitigate the risk of a more extreme tightening of credit conditions, which, if it were to come to pass, could put further pressure on economic activity and employment.

In summary, while the monetary policy reaction has not been as accommodating as many investors may have anticipated or hoped for, we believe that it has nevertheless provided significant breathing space during which progress on policy reform can be made. Furthermore, the ECB may yet engage in additional supporting steps should the sovereign and bank funding crises intensify further. Therefore, we have not changed our monetary score on eurozone sovereigns.

HOW DOES STANDARD & POOR'S ASSESS THE REFORM EFFORTS OF THE NEW GOVERNMENTS IN ITALY AND SPAIN?

In our view, the governments of Mario Monti and Mariano Rajoy have stepped up initiatives to modernize their economies and secure the sustainability of public finances over the long term. We consider that the domestic political management of the crisis has improved markedly in Italy. Therefore, we have not changed our political risk score for Italy because we are of the opinion that the weakening policy environment at the European level is to a sufficient degree offset by Italy's stronger domestic capacity to formulate and implement crisis-mitigating economic policies.

Despite these encouraging developments on domestic policy, we downgraded both sovereigns by two notches. This is due to our opinion that Italy and Spain are particularly prone to the risk of a sudden deterioration in market conditions. Thus, we believe that, as far as sovereign creditworthiness is concerned, the deepening of the crisis and the risks of further market dislocation that could accompany an inconclusive European crisis management strategy more than offset our view of the enhanced national policy orientation.

WHY WAS IRELAND THE ONLY SOVEREIGN AMONG THE SO-CALLED "PERIPHERY" NOT
DOWNGRADED?

We have not adjusted our political score backing the rating on Ireland. This reflects our view that the Irish government's response to the significant deterioration in its public finances and the recent crisis in the Irish financial sector has been proactive and substantive. This offsets our view that the effectiveness, stability, and predictability of European policymaking as a whole remains insufficient in addressing the deepening financial crisis in the eurozone. Excluding government-funded banking sector recapitalization payments, the authorities have adjusted Ireland's budget by almost 13% of estimated 2012 GDP since 2008 and plan additional fiscal savings of close to 8% of GDP for 2012-2015. All other things being equal, we view the government's fiscal consolidation plan as sufficient to achieve a general government deficit of about 3% of GDP in 2015. In our view, there is currently a strong political consensus behind the fiscal consolidation program and policy implementation so far has been extremely strong.

In our view, Ireland has the most flexible and open economy among the "periphery" sovereigns. We believe that Ireland's economic adjustment process is further advanced than in the other sovereigns currently experiencing market pressures. This is illustrated by the 25% depreciation in the trade-weighted exchange rate since May 2008 and Irish exports growth contributed positively to the muted Irish economic recovery in 2011. However, in our view this also leaves the Irish economy and, ultimately, the Irish government's fiscal consolidation program susceptible to worsening external economic conditions, which is reflected in our negative outlook on the rating.

WHAT ARE THE IMPLICATIONS FOR THE EFSF AND OTHER EUROPEAN MULTILATERAL LENDING INSTITUTIONS?

Following our placement of the ratings on the eurozone sovereigns on CreditWatch in December, we also placed a number of supranational entities on CreditWatch with negative implications. These included, among others, the European Financial Stability Fund (EFSF), the European Investment Bank (EIB), and the European Union's own funding program. We are currently assessing the credit implications of today's eurozone sovereign downgrades on those institutions and will publish our updated credit view in the coming days.

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Fri, 01/13/2012 - 19:58 | 2063636 navy62802
navy62802's picture

Bomb Iran and end this corrupt bullshit once and for all. Bombing Iran will speed this process up quite a bit.

Fri, 01/13/2012 - 20:03 | 2063647 Future Tense
Future Tense's picture

It's amazing how long this whole process is taking.  This sovereign debt train wreck feels like it is moving so much slower than the housing crisis.  Once we finally get the first default or major bankruptcy out of Europe it is going to trigger chaos in both China and Japan.  Here is a good article discussing what guys like John Mauldin talk about in Endgame through the lens of a butterly effect:

http://www.ftense.com/2012/01/2012-outlook-global-butterly-effect.html

Fri, 01/13/2012 - 20:07 | 2063653 LaLiLuLeLo
LaLiLuLeLo's picture

They're going to stretch this thing out further than Kim Kardashian's g-string.

Fri, 01/13/2012 - 20:09 | 2063664 I think I need ...
I think I need to buy a gun's picture

THE PLAN is in place

Fri, 01/13/2012 - 20:22 | 2063695 The Alarmist
The Alarmist's picture

Dude, the bombing of Iran can't start until October 2012, otherwise its effectiveness at helping re-elect a wartime President Obama will diminish as the "war" becomes yet another protracted conflict. 

BTW, you can also expect the second killing of Osama around the same time.

Fri, 01/13/2012 - 20:46 | 2063739 UP Forester
UP Forester's picture

Nah, with 3 carrier groups in sortie range, the fireworks will start pretty soon.

After all, with a "righteous war" going on, TPTB can blame Iran on the collapse of the global economy.

Fri, 01/13/2012 - 21:05 | 2063778 Fukushima Sam
Fukushima Sam's picture

Quick, look over here at Iran while we double down on the failed bureaucratic experiment!

Fri, 01/13/2012 - 21:53 | 2063869 eureka
eureka's picture

THE TYLERS HATE EU - AND EUROPEANS TOO - THEY JUST FORGOT TO LIST THEIR OTHER FAVORITE DEROGATORY TERMS FOR EUROPEAN BUREAUCRATS: "FAT AND BALD" - 

one could get the idea that THE TYLERS ARE TOOLS FOR US EMPIRE - as in "THERE CAN ONLY BE ONE" - i.e. only one centralized conglomeration, one empire, in this world - and that is of course the US one -

the Tylers do criticize the Bernank and the FEDERAL RESERVE, but NEVER EVER US Corporate and Military Empire, i.e. the other leg of US EMPIRE AND ITS COLLECTIVIST AND BUREAUCRAT DRIVEN DEATH MACHINE

never mind that US & UK - the USUKs - are the biggest financialization scumbags in the history of the world - rigging and ripping off everybody for way too long - including rigging EU with TOTAL GARBAGE US PAPER - thereby executing a consistent US strategy to kill the EUR and EU, who was getting way too strong way too fast for the taste of the "noble" US Elite, noble US kleptocrats and noble assorted US hegemons -

NOTE TO THE TYLERS:  YOU BIASES AND ALLEGIANCES ARE GETTING ULTRA TRANSPARENT - AND BORING.

IF EU goes down - mark my words: US EMPIRE goes with it.

Fri, 01/13/2012 - 21:54 | 2063873 UP Forester
UP Forester's picture

Wow.  Read much?

Better yet, comprehend much?

Do you need a hug?

Sat, 01/14/2012 - 06:32 | 2064348 Ethics Gradient
Ethics Gradient's picture

He certainly hasn't read the 'about' page: http://www.zerohedge.com/node/13972

Zerohedge biased? Yes. It's advertised as such.

Sat, 01/14/2012 - 11:11 | 2064491 GetZeeGold
GetZeeGold's picture

 

 

The socialists have killed millions.

 

Perhaps we should get a clue and just get rid of the socialists.

 

Seems like it would solve a lot of problems.

Sat, 01/14/2012 - 15:16 | 2064799 tj3
tj3's picture

The physicists' have killed millions.

Perhaps we should get a clue and just get rid of the physicists.

Seems like it would solve a lot of problems.

ftfy

Sat, 01/14/2012 - 18:01 | 2065013 GetZeeGold
GetZeeGold's picture

 

Wrong.....physicists have designed things that have killed millions.

 

You must be a socialist.

 

Only a socialist is that freakin dumb.

 

 

Sat, 01/14/2012 - 20:30 | 2065316 TheFourthStooge-ing
TheFourthStooge-ing's picture

GetZeeGold claimed:

Only a socialist is that freakin dumb.

No "ism" or "ist" has cornered the market in stupidity. It is distributed more equitably than anything else in the world.

 

Sun, 01/15/2012 - 09:29 | 2066034 GetZeeGold
GetZeeGold's picture

 

 

Pure horseshit ami...........go read a fu_king history book.

Until you do please shut up.

 

 

 

 

Sun, 01/15/2012 - 09:44 | 2066041 TheFourthStooge-ing
TheFourthStooge-ing's picture

GetZeeGold proved my point when stating:

Pure horseshit ami...........go read a fu_king history book.

No need to do so, buddy. I've learned through direct observation that no matter how you categorize people into groups, each group will have its share of both sensible people and stupid people.

Until you do please shut up.

Please go fuck right off.

 

Sat, 01/14/2012 - 12:33 | 2064575 hunglow
hunglow's picture

That's a header exhaust gasket for a 63 Lincoln, right?

Sat, 01/14/2012 - 20:56 | 2065367 UP Forester
UP Forester's picture

Rotor from a Wenkel engine, most likely a Mazda RX engine.

Sat, 01/14/2012 - 07:47 | 2064382 Ghordius
Ghordius's picture

perhaps a hug would help! +1 for offering one

no I think eureka is just fuming about some of the preconceptions around the language this Tyler uses:

 

"Europe's incompetent and corrupt klepocrarts" - the question is all of them? compared to...?

"true terrifying perspective eurozone ...faces" - what perspective? default? this would not be terrifying...

"failed experiment is coming to an end" - this is a baddy, because for most EU denizens, it's all about not having any wars in Europe anymore, i.e. decrease national policy collisions, so here the misunderstanding is about the goals and the means... Tyler is not aware enough of the non-British-view-in-Europe

"the Eurozone's idiotic foundation" - what? a common currency? did we not have once a gold-standard? again, a bit vague and sounds like half-baked basic propaganda for Continental Europeans ears...

"was laid out by the same breed of central planning academic wizards who thought that Keynesianism was a great idea" - aha! here comes the beef, the central US-Austrian view that all in Europe is Keynesian-socialist. Here the Tylers just don't understand many of the reasons of the EU and the eurozone, how much of it is a reflection on the US hegemony and how much thought was put into it from people that would agree with the Tylers in many points and did foresee some little things like new currency and trade wars. Too much British propaganda/POV, that's all.

"the imminent downfall of Europe will only precipitate the final unraveling of the shaman "economic" religion that has taken the world to the brink of utter financial collapse and, gradually, world war."

And here the grand finale: Europe has to fall (to what? again? worse then the WWs?), so that the shaman religion is taken down (Neo-Keynesianism), financial collapse (but please do not include the whight knight hedgies into it, they are doing it right, they are the riders of the apocalypse) and, of course, world war.

IMHO, you can't have all three, but, ok, ok, we'll see...

 

Sat, 01/14/2012 - 09:20 | 2064426 nmewn
nmewn's picture

"And here the grand finale: Europe has to fall (to what? again? worse then the WWs?), so that the shaman religion is taken down (Neo-Keynesianism), financial collapse (but please do not include the whight knight hedgies into it, they are doing it right, they are the riders of the apocalypse) and, of course, world war."

lol...yes, having foreign financial institutions dictate how sovereign nations and their people will conduct their own internal affairs is a much better enslavement strategy.

Sorry, my sarc button is rusted, needs a little Greece ;-)

Sat, 01/14/2012 - 10:05 | 2064453 Ghordius
Ghordius's picture

LOL, Greece is good for drama, tragedy (of the commons), irony and sarcasm...

I get reminded of Churchill and his "soft underbelly of Europe" theory he applied in WW1 and WW2

BTW, I do not hate Neo-Keynesianism, I just think it's the usual rob-as-you-go corruption as seen in history hundred times...

Sat, 01/14/2012 - 10:14 | 2064457 Ghordius
Ghordius's picture

"enslavement" is a big word - there are so many like ally, vassal, follower, debitor, creditor, "the one that pays for G.H.Bush war", "those who set up a shadow-dollar-called-euro", "those who attack Lybia", and "those who throw a temper tantrum".

the relationship between the US hegemon and the european hegemony is old and complex, like an old man, his three wifes, 23 concubines and the sexy cook.

Sat, 01/14/2012 - 14:01 | 2064675 Karl von Bahnhof
Karl von Bahnhof's picture

Hey guys, think twice, it is not Europe AGAINST Us... At least it should not be!

But propaganda runs 300%

Sat, 01/14/2012 - 13:48 | 2064662 piceridu
piceridu's picture

Yes, and how many primary dealers are foreign entities?

Sat, 01/14/2012 - 14:17 | 2064694 disabledvet
disabledvet's picture

it's a "fat bald thing" apparently.

Fri, 01/13/2012 - 22:01 | 2063886 Biff Malibu
Biff Malibu's picture

you're very new here aren't you.  Put on your dunce cap and take a seat up at the front.

Fri, 01/13/2012 - 22:01 | 2063887 Biff Malibu
Biff Malibu's picture

you're very new here aren't you.  Put on your dunce cap and take a seat up at the front.

Fri, 01/13/2012 - 23:19 | 2064037 Betty Swallsack
Betty Swallsack's picture

Seems to be an echo

Sat, 01/14/2012 - 04:39 | 2064299 Dugald
Dugald's picture

No no, he stutters a bit......

Sat, 01/14/2012 - 11:15 | 2064499 GetZeeGold
GetZeeGold's picture

 

 

The NSA bots are still under development.......should be a lot more reliable as time goes by.

Fri, 01/13/2012 - 22:04 | 2063893 Rynak
Rynak's picture

Those anti-tyler troll-posts are getting repetitive.... can't you folks at least employ more than one contractor to write them, so that we can have some diversity in rethorics?

Fri, 01/13/2012 - 22:11 | 2063910 Richard Whitney
Richard Whitney's picture

Your remarks are characteristic of degenerate, mephitic European 'thinking'. You are doomed. You blame the Anglo-Saxon world for all of your own self-inflicted misfortunes.

 

 

Fri, 01/13/2012 - 22:33 | 2063955 Michael
Michael's picture

I love the smell of complete and total worldwide economic collapse on a Friday evening.

I can finally say it; I TOLD YOU SO!

Dont worry about more wars, the sheeple can't even pay back the debt  they already owe.

Fri, 01/13/2012 - 23:10 | 2064027 J 457
J 457's picture

I love the smell of complete and total worldwide economic collapse on a Friday evening.

Wheres the collapse?  Seems this downgrade was already discussed last Friday, and today seemed a non-event.

That's a far cry from worldwide economic collapse.  ES almost green when downgrade announced.

 

Fri, 01/13/2012 - 23:25 | 2064048 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

It's priced in!  Carry on!

Sat, 01/14/2012 - 11:24 | 2064502 GetZeeGold
GetZeeGold's picture

 

 

And the final price is............

Sat, 01/14/2012 - 11:19 | 2064503 GetZeeGold
GetZeeGold's picture

 

 

The final price is zero.

 

On a long enough time-line the survival rate for everyone drops to zero.

 

I think I read that somewhere.

Sat, 01/14/2012 - 00:42 | 2064166 The Monkey
The Monkey's picture

You must be a time traveler from Pompei.

Sat, 01/14/2012 - 01:20 | 2064197 chinaguy
chinaguy's picture

The trolling comes hot & heavy as the MSM & their handlers realize that this was all reported WEEKS ago & maybe it's time to overweight hashing the "fringe bloggers" .

a big HAW Haw! to all you troll motherfuckers & how cheap do you sell your cunts for?

 

Sat, 01/14/2012 - 03:29 | 2064276 Michael
Michael's picture

Why is this video not on the front page of ZH for the whole weekend?

Ron Paul's Spirit Visits the Texas Republican Senatorial Debate

http://www.youtube.com/watch?v=PwVxec6uesA&feature=player_embedded#!

Sat, 01/14/2012 - 04:51 | 2064305 zhandax
zhandax's picture

this was all reported WEEKS ago

I have to admit, as I read the actual FAQ, I was wondering whether Tyler had been moonlighting over at S&P or if he had a nice plagiarism suit.

Sat, 01/14/2012 - 14:19 | 2064696 disabledvet
disabledvet's picture

we're the MSM now. while i will make an exception for CNN...that's it.

Sat, 01/14/2012 - 05:41 | 2064328 Dubious Intentions
Dubious Intentions's picture

Rust damage of the structural steel of a bridge can go unnoticed for quite some time...

...until it collapses and kills all those unfortunate enough to find themselves on it at the time.

Cheers

Sat, 01/14/2012 - 14:43 | 2064746 ViewfromUnderth...
ViewfromUndertheBridge's picture

...or under it.

Sat, 01/14/2012 - 13:29 | 2064637 Cloud9.5
Cloud9.5's picture

Jeeesus!  Remember back in the day when the left derided us and wondered why we could not be more like the Europeans.  I am reminded of an old idea. At some point you run out of other people's money.  Stolen from M.T.

Sat, 01/14/2012 - 19:09 | 2065147 bombimbom
bombimbom's picture

note to himself: reasons for gratuitous hate - europe being an example for american leftists. rightists hate leftists. libertarians even more.

it must be because of the fact most of europeans didn't forget nor ignore the fact that man is a social animal and community/society is a natural part of men. so, welfare is not really political (political is how and how much) for most of us, it's something that has to be. it's civilization. (a propos, remember, out of your exquisite, albeit socialist, altruism, to tell americans not to hold their breath waiting for european welfare to cease to exist).

 

 

 

 

Fri, 01/13/2012 - 22:59 | 2064013 akak
akak's picture

At least he is not as bad as the anonymous troll who endlessly and mindlessly drones on about his nonsensical "US Citizenism".

Sat, 01/14/2012 - 00:01 | 2064089 Oh regional Indian
Oh regional Indian's picture

Akak, Mr. Anonymous might rankle the ZH rank and file, but his comments apply to the Average joe really really well. it is truth told bitterly, again and again. And it's true. The world is un-fortunately, living the American Nightmare.

You hate it, I hate it, everyone hates it. And the citizenry looks guilty by sins of omission. It's true all around, but unfortunately, at this time, Usrael has the world by the cajones.

And as for the EUSRAEL attack on sovereignity, clearly ratings agencies, so thoroughly dis-credited, are tools or weapons even. The goal, direction....all clear as day.

ori

-vishwakarmas-pyr-cone-amid/

 

 

Sat, 01/14/2012 - 05:06 | 2064301 akak
akak's picture

While Mr. Anonymous' comments have some validity when leveled against the US government, I must strongly disagree with, and take offense at, his inane and ludicrous broad-brushing in implying that those policies are somehow not just reflective of, but the direct and inherent product of, ALL Americans collectively, a sweeping accusation which he hurls in virtually every sentence he writes under the nonsensical and meaningless rubric of "US Citizenism" --- as if merely being a US citizen automatically entails adherence (and UNANIMOUS adherence at that) to some dark and evil ideology, the existence of which he constantly claims, but the details or even outline of which he can never seem to describe or explain. 

This poster is a collectivist in the truest and most pernicious sense of the word, ignorantly and irrationally accusing EVERY citizen of the United States for the actions of its oligarchic, unaccountable federal government.  If that is not blind and unjust stereotyping, not to mention a complete failure of elementary reason and logic, I don't know what is.  It would be fair play if this AnAnonymous told me which nation HE is a citizen of, so that I could blame HIM for all that government's policy failures and faults.  But being sensible and rational, I would not do so.

Sat, 01/14/2012 - 06:34 | 2064350 mrgneiss
mrgneiss's picture

Ya, I'm sure the country he's from is "utopia".

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