Euro zone credit ratings downgrade … reactions

Given the hysteria that greeted the announcement that Standard & Poor's was taking away France's AAA rating (along with that of Austria leaving Germany the only euro zone country with the top rating) – at least in the press – you might have thought the euro zone crisis was going to explode again. Not so.

That isn't to say some political leaders weren't angry. Spanish Prime Minister Mariano Rajoy was, following Spain's downgrade to A from AA-, according to this headline in El Pais.

Rajoy to Standard & Poor's: we don't need economic lessons:

"My government knows perfectly well what it needs to do to improve Spain's reputation, stimulate growth and create jobs," PM fires back after rating downgrade.

Following Italy's downgrade to BBB+ Italian Prime Minister Mario Monti told La Stampa, the downgrade, "was not a judgment on our action, but it is a further problem, as it makes certain investments impossible." Monti pointed out that "many pension and investment funds have in their statutes the prescription not to invest in those countries which are evaluated below A."

The most interesting reaction was not at government level but in the Financial Times. In its lead editorial Saturday morning the FT wrote of S&P's decision: "The most likely outcome and best hope is that it will not make all that much of a difference." The editorial continued, "Sovereign credit ratings are per se irrelevant: they reveal no new information and should largely be foregone conclusions." If they have impact "it is because governments anoint them in that role …"

France took the FT line in responding to the S&P downgrade, Prime Minister Francois Fillon said “Credit ratings agencies are useful indicators, but it’s not they that make the politics of France.”

But we'll see if Fillon is as circumspect if Moody's maintains its AAA rating for France.  The agency plans to publish a reassessment of its rating sometime in the first quarter of this year.  If it does that would mean two out of the big three ratings agencies have decided that the euro zone's second largest economy is still worth a top rating. Fitch has already announced that it would continue to grade French sovereign debt AAA.

French newspaper Liberation, continued the gallic shurg towards S& P.  It had a headline at mid-day today, "Triple A: still waiting for the market apocalypse." The story noted that the market response to Standard & Poor's downgrade was measured. This was proof that investors had already priced in a downgrade into their planning and so there was no great shock at confirmation of France going down to AA+.