Brussels, 16/01/2012 (Agence Europe) - On Monday 16 January, the European Commission said that the European Union was not only introducing an austerity policy in order to deal with the debt crisis. The Commission was reacting to criticisms by US credit ratings agency Standard & Poor's when it downgraded the credit rating of nine eurozone countries on Friday. Olivier Bailly, a Commission spokesman, said S&P's idea that Europe was only following a policy of budget austerity was not the right way of looking at things.
S&P downgraded the ratings of nine eurozone countries, removing France and Austria's triple A rating (the top notch) and reducing the ratings of the long-term debt of Cyprus, Spain, Italy and Portugal by two grades. It cut the long-term debt ratings of Austria, France, Malta and Slovakia by one notch.
The Commission said on Monday that in order to deal with the debt crisis, it was calling for a two-pronged approach of budget consolidation and structural reforms to boost growth and jobs. Bailly said the strategy was already generating results, so S&P's timing was very “odd”, coming after several positive outcomes and announcements of upcoming structural reforms in key countries like France, Spain and Italy. Bailly added that the downgrade also came after improvements on the debt markets for Italian and Spanish bonds, whose yields had fallen. Asked about a Commission idea to prevent countries in receipt of international aid from being given credit ratings, Bailly regretted that the idea had been dropped, saying that Friday's downgrade made it look a very sensible idea.
The decision by Standard and Poor's to make it more expensive for so many countries to borrow money has opened a debate about the need for more cash in the European Financial Stability Facility (EFSF) to ensure it keeps its own AAA rating. The European Stability Mechanism (ESM) is due to take over from the EFSF on 1 July 2012. The two bailout mechanisms will both be in operation for a year while the EFSF is phased out. In theory, the total lending capacity of the two bodies should be €500 billion, but several eurozone countries, the ECB and the European Commission want it to have a higher lending capacity. At the moment, the EFSF can in theory lend a total of €440bn, but it only has €250bn in its virtual coffers. On 13 January 2012, the chair of the Eurogroup, Jean-Claude Juncker, said that “euro area heads of state on 9 December 2011 took bold and ambitious decisions… The EFSF has sufficient resources available to fulfil its commitments under current and potential future adjustment programmes. The shareholders of the EFSF affirm their determination to explore the options for maintaining the EFSF's AAA rating.” (LC/transl.fl)