Financial markets close in turmoil as downgrades spread across Eurozone

January 14, 2012 – FRANCE – Standard & Poor’s swept the debt-ridden European continent with punishing credit downgrades Friday, stripping France of its coveted AAA status and dropping Italy even lower. Germany retained its top-notch rating, but Portugal’s debt was consigned to junk. In all, S&P, which took away the United States’ AAA rating last summer, lowered the ratings of nine countries, complicating Europe’s efforts to find a way out of a debt crisis that still threatens to cause worldwide economic harm. Austria also lost its AAA status, Italy and Spain fell by two notches, and S&P also cut ratings on Malta, Cyprus, Slovakia and Slovenia. The downgrades on more half of the countries that use the euro could drive up yields on European government debt as investors demand more compensation for holding bonds deemed to be riskier. Higher borrowing costs would put more financial pressure on countries already contending with heavy debt burdens. “In our view, the policy initiatives taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone,” S&P said in a statement. Stocks fell Friday as downgrade rumors reached the trading floors of Europe and the United States. But the declines were nothing like the wrenching swings of last summer and fall, when the debt crisis threw the markets into turmoil. The Dow Jones industrial average in New York was down 0.5 percent. Stocks fell 0.6 percent in Germany, 0.5 percent in Britain and 0.1 in France, but each of those markets closed before French Finance Minister Francois Baroin gave first word of the country’s downgrade on French television. –LA Times