Fitch Ratings is a global rating agency that distributes ratings, research, financial data to help investors make important economic decisions, and when Fitch downgrades a nation’s financial health rating, it matters. The latest report from Fitch now includes credit rating cuts for Italy, Spain, Belgium, Slovenia and Cyprus, as Fitch says those nations lack the necessary level of financing flexibility in the face of the regional debt crisis facing Europe in 2012.
Italy’s credit rating was cut two levels to A- from A+ and the rating for Spain was also lowered two notches, to A from AA-. The ratings for Belgium, Slovenia and Cyprus were reduced by one point. Even though the European Central Bank added liquidity in recent weeks, the sovereign-bond yields have fallen in both Italy and Spain. The entire European region is struggling to bolster their economic defenses if Greece finally capitulates and defaults on its debts. The Fitch report said “The divergence in monetary and credit conditions across the euro zone and near-term economic outlook highlight the greater vulnerability these nations face in the event of financing shocks, and the sovereigns do not accrue the full benefits of the Euro’s reserve currency status.”
At the same time, U.S. Treasury Secretary Timothy Geithner told European leaders that the U.S. is not going to provide more support for the European region unless its own governments act first. Geithner said “The only way Europe’s going to be successful in holding this together, making the monetary union work, is to build a stronger firewall, and that’s going to require a bigger commitment of resources.”
Citing Europe’s failure to find a comprehensive solution to the region’s crisis, Fitch put Spain, Italy, Ireland, Cyprus, Belgium and Slovenia on review for possible downgrades in mid-December. The ratings agency also lowered the outlook on France’s AAA rating at the same time, although the company said that France’s rating would probably not be cut in 2012. For most European economists however, the most important aspect of the downgrades is that the credit ratings of both Italy and Spain remain at or above their Standard & Poor’s ratings. Any way you interpret the data, the new downgrades are a definite wake up call for the European financial markets.
