Friday 13th In Eurozone: The most demonized number at its worst

As we approached Friday 13th, a sense of inexplicable apprehension swept through the United Kingdom on multiple fronts: firstly, there was the looming threat of the break-up of the union that stood for 300 years, as Scottish nationalists started demanding a referendum on the issue; then, there was the risk of being hit by a Russian spacecraft which, according to sky watchers, is out of control and at the mercy of gravity in its downward spiral; on political-security front, there was an implicit accusation by Iran of the alleged British involvement in the assassination of one of its top scientists by a magnetic bomb, attached to his car by two passing motorcyclists.

As the day wore on, we resigned to our fate, as the answers to the mushrooming crises were beyond our grasp. Then, there came the bolt from the blue at dusk: “Standard & Poor’s was about to downgrade eurozone economies,” was the breaking news of almost all the TV channels. When the list was announced a few hours later, the shock was palpable among the inhabitants of British Isles, in spite of Britain escaping unscathed.

The biggest shock was the way France lost its AAA rating. At first, Francois Baroin, the French finance minister, embarked upon a damage-limiting manoeuvre by pre-empting the unpleasant outcome, before Standard & Poor’s did it, as if he got the wind of the move. With the French presidential election just 100 days away, the move by the French politician is thoroughly understandable. Nicholas Sarkozi, the French president, perhaps being deeply hurt – and humiliated too – meanwhile, seemed to have assigned the role of public speaking to his closest lieutenants in the wake of very bad news.

The French, then, turned on their old-enemy across the Channel – England. Some French politicians went as far as declaring that Britain was more deserving of a downgrade than France, perhaps, pointing a finger at the public debt level as a percentage of the GDP. A German politician lent his support to the French in the hour of need by saying that Standard and Poor’s must downgrade Britain too for the sake of ‘consistency’. In short, economic woes are rekindling historic rivalries right across the European Union at an alarming rate.

The loss of the credit rating significantly damaged the French national pride. The speed at which both the politicians and nationalists took on the credit rating agency reflects the French anger. It was particularly humiliating for President Sarkozy, as he was playing the role of a rescue-messiah to save struggling weaker economies in the eurozone, a few weeks ago; he even publicly fell out with David Cameron, the British prime minister for not dancing to his tune while refusing to shake his hands.

Moreover, the setback suffered by France creates even a bigger problem for Greece. It is very difficult to envisage the resurrection of the bailout fund when the leading player had its credit rating cut. In these circumstances, a default by Greece is inching towards reality. If that happens, Greece will be forced to leave eurozone and such a hasty departure is not going to be a smooth one, as far as the strong players of the eurozone are concerned. Because, the major banks which lent money to Greece are in the richer nations.

Standar & Poor’s has been pretty brutal in its assessment of European econmoies. Austria, Italy, Spain, Portugal, Malta, Cyprus, Slovenia and Slovakia were the other nations which had their credit ratings cut. Italy was also badly hit, as it lost tow notches. Both Portugal and Cyprus were downgraded to ‘junk’ status. Standard & Poor’s did not stop at that; it warned Europe that it may lower the ratings even further unless the politicians get to grips with the debt crisis.

The fact that the European economies are now at the mercy of credit rating agencies, propels the borrowing cost even higher at a time, when the need is the exact opposite. With Greece teetering on the brink of bankruptcy and Italian bond yields going past psychologically-sensitive 7% level, it is sheer madness to treat the collective loss of credit rating as something symbolic, stemming from a politically motive.

- Asian Tribune -