The Standard and Poor’s ratings agency today announced a much anticipated rating downgrade for nine European countries.
The agency lowered the long-term ratings on Cyprus, Italy, Portugal and Spain by two notches, and lowered the long-term ratings on Austria, France, Malta, Slovakia and Slovenia by one notch.
Belgium, Estonia, Finland, Germany, Ireland, Luxembourg and the Netherlands’ ratings remain unchanged.
As part of the announcement, the ratings agency said the EU “has not produced a breakthrough of sufficient size and scope to fully address the Eurozone’s financial problems.”
The statement also said that austerity measures risk becoming self-defeating as economic uncertainty grows in Europe.
Markets expected this news today; the Dow closed the day down a relatively modest 48.96 points.
European markets closed lower as well, but not dramatically so.
Understandably, the Euro currency seems to be hit hardest by the news. This latest downgrade highlights the mismatch between the countries that make up the Eurozone.
All of Europe’s troubles could have a negative effect on the U.S. economy. A stronger dollar and weak demand in Europe is bad for U.S. exports.
The Commerce Department reported today that American exports to Europe were down nearly six percent.
Joel Naroff, chief economist at Naroff Economic Advisors, said in a note today that “the decline in our sales to Europe was fairly large and may be the start of a longer-term trend in declining exports to the continent.”
Meanwhile, Greece’s debt restructuring talks collapsed in Athens. Greece does not have enough money to make its debt payments due in March, and officials are trying to come up with a deal so that Greece does not have to pay the entire amount that is due.
So as the U.S. starts the year with somewhat optimistic economic news, Europe continues to be one of the major factors threatening the feeble recovery.