A fire was lit under Europe yesterday to resolve its debt crisis this week or 15 of its economies — including powerful Germany and France — could take a hit on their sovereign credit ratings overnight.
Wall Street also felt the heat from the downgrade menace, with an early rally giving up nearly half its gains — a tired scenario likely to replay all week, analysts said.
The Dow Jones industrial average rose 78.41 to 12,097.83, and the Standard & Poor’s 500 index added 12.80 to 1,257.08. The Nasdaq gained 28.83 to 2,655.76.
Ratings firm Standard & Poor’s fired a warning shot at Europe, banishing 15 of the 17 euro zone nations to the negative watch list to await potential downgrades as early as Friday.
That’s when a European summit will determine if governments can together write new rules on higher taxes and deeper cuts to make a bailout possible.
If no deal comes, S&P said, it will issue wholesale downgrades on 15 nations. It includes stripping the top AAA rating from six of the strongest nations — Germany, France, The Netherlands, Austria, Finland and Luxembourg.
The downgrades could hurt more than national pride. It dramatically hikes the costs of borrowing by governments, and could further choke already frozen short-term credit markets across Europe.
Downgrades of Germany and France alone could harm the credit of the European Financial Stability Facility — and limit the amount of money the bailout fund could borrow to aid Greece, Ireland and Portugal.
S&P said its tough stance was justified because “systemic stress in the euro zone has risen in recent weeks and reached such a (high) level.”
