S&P cuts France; more downgrades expected

Credit ratings agency Standard & Poor?s cut France?s credit rating Friday, the nation?s finance minister said. The move is part of an expected downgrade for several euro zone countries and the first blow of the new year for the troubled single currency.

Francois Baroin said S&P notified Europe?s second biggest economy Friday that its cherished triple-A rating had been cut by one notch to AA+, and most euro zone states had received notices of a change. Baroin insisted that the downgrade of the nation?s debt would not mean a change of direction for its economic policies.

?This is not a catastrophe. It?s an excellent rating. But it?s not good news,? Baroin told France 2 television, saying the government would not respond with further austerity measures.

Reuters reported earlier Friday that S&P was set to downgrade the credit ratings of several euro zone countries, among them France, Italy, Spain, Austria, Portugal and Slovakia. S&P declined to comment to msnbc.com on the reports.

Germany, the Netherlands, Finland and Ireland are among those to be spared the ratings cut, which would likely drive up borrowing costs for those affected as Europe attempts to tackle its growing debt crisis.

Eurozone slammed by downgrades, collapse of talks

Another source told Reuters that Slovakia, the euro zone's second poorest country currently rated A+ by S&P, would suffer a downgrade.

In a potentially more serious setback for the euro zone, negotiations on a debt swap by private creditors seen as key to averting a Greek default that would rock Europe and the world economy broke up without agreement in Athens, although officials said more talks are likely next week.

Reports that downgrades were on the way hit stocks, the euro and boosted demand for safe-haven U.S. government debt.

The possible downgrade comes as European leaders prepare for a summit at the end of January to tackle the expanding debt crisis.

On Wednesday, European leaders got a warning from the head of credit rating agency Fitch, that promises would not be enough. David Riley, Fitch?s head of sovereign ratings, urged the European Central Bank to ramp up its buying of troubled euro zone debt to support Italy and prevent a "cataclysmic" collapse of the euro.

Unlike their U.S. counterparts at the Federal Reserve, Europe?s central bankers have balked at buying up bad bonds in bulk, largely based on fears from influential German leaders that such a move could spark a dangerous bout of inflation. ECB bond buying is also politically unpopular with German voters, who also have opposed bailouts of Europe?s weaker, ?peripheral? economies like Greece.

More recently Italy, Europe?s third largest economy and the third biggest issuer of debt behind the U.S. and Japan, has lost investor confidence that it can manage its debt payments. That?s forced up borrowing costs, as investors demand higher interest rates to buy fresh Italian debt, adding to concerns that Rome may eventually default.

In December, S&P placed the ratings of 15 euro zone countries on credit watch negative - including those of top-rated Germany and France, the region's two biggest economies - and said "systemic stresses" were building up as credit conditions tighten in the 17-nation bloc.

Since then, the European Central Bank has flooded the banking system with cheap three-year money to avert a credit crunch.

At the time, S&P said it could also downgrade the euro zone's current bailout fund, the EFSF.

A downgrade could automatically require some investment funds to sell bonds of affected states, making those countries' borrowing costs rise still further.

"It's been priced in for several weeks, but the market had been lulled into complacency over the holidays, and the new year began with a bounce in risk appetite, thanks partly to a good Spanish auction," said Samarjit Shankar, Director Of Global Fx Strategy at BNY Mellon in Boston.

"But the Italian auction brought us back to earth and now we face the specter of further downgrades."

Italy's three-year debt costs fell below 5 percent on Friday but its first bond sale of the year failed to match the success of a Spanish auction the previous day, reflecting the heavy refinancing load Rome faces over the next three months.

The Associated Press and Reuters contributed to this report.

Source: http://www.msnbc.msn.com/id/45985510/ns/business-world_business/

49ers new england patriots denver broncos tebow patriots vs broncos contraband tim tebow