Eurozone Rebound Expected in 2013: S&P
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This could be a decisive year in determining whether the eurozone can emerge from its three-year-old sovereign debt crisis, credit ratings agency Standard and Poor’s said in a report on Wednesday.
After more than three years of economic, financial, and budgetary stress in the eurozone, especially on its so-called “periphery”, some signs of stabilisation emerged in the latter half of 2012, signalling the potential start of the region sustainably overcoming the market volatility and fragmentation that has affected it over the past few years.
This could be a decisive year in determining whether the eurozone can emerge from its three-year-old sovereign debt crisis, credit ratings agency Standard and Poor’s said in a report on Wednesday.
After more than three years of economic, financial, and budgetary stress in the eurozone, especially on its so-called “periphery”, some signs of stabilisation emerged in the latter half of 2012, signalling the potential start of the region sustainably overcoming the market volatility and fragmentation that has affected it over the past few years.
Describing the past year as “another eventful one for eurozone sovereign creditworthiness and ratings”, S&P noted that the year 2012 began with the downgrade of nine eurozone sovereign ratings in mid-January, including the loss of the ‘AAA’ ratings that Austria and France had held for more than three decades.
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But from “today’s vantage point”, the agency said there were two events in 2012 that helped begin to restore credibility in the region: The establishment of a permanent bailout fund that allowed for the direct recapitalisation of banks, thus breaking the “vicious circle between vulnerable governments and weakly capitalised banks”, as well as the European Central Bank’s decision to introduce “outright monetary transactions” that allowed for unlimited bond purchases.
Moritz Kraemer, credit analyst at S&P, said:
[quote] Nevertheless, we believe that investor confidence will only return if member states continue to make progress in rebalancing their economies, both through structurally stabilising public debt and by further reducing external deficits. Achieving this will take a disciplined and transparent response from policymakers both at national and European levels. Safeguards to the social contract may also be necessary to assist in the cohesion of those member states suffering from high unemployment, excessive private leverage, and stagnating or falling living standards. [/quote]
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“In our view, this is a challenging but achievable agenda, although implementation risks loom large,” the agency added. “These risks are the main reason that the majority of our outlooks on our euro zone sovereign ratings are still negative.”
S&P was the first firm to downgrade France by one notch to AA+ last year and the only ratings agency to strip the US of its AAA rating in 2011.
The agency’s forecasts largely corroborates with the findings of key European institutes as well as the ECB’s projection of a mild but gradual recovery later in the year.
Related News: Eurozone Recovery Expected in Mid-2013: Draghi
Germany’s Ifo Institute, France’s INSEE and Italy’s Istat said in their quarterly forecast that the eurozone economy would see unchanged output in the first quarter of this year, after a decline of 0.4 percent in the last quarter of 2012. The single-currency zone would then rebound to 0.2 percent growth in the second quarter of the year.
