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Rating downgrade might accelerate European integration

(People's Daily Overseas Edition)

13:22, January 20, 2012

Edited and translated by People's Daily Online

The Standard & Poor’s has downgraded the sovereign ratings of nine countries in the euro zone, which brings new uncertainties for the recently stabilized European financial market, and this is another disaster for the European debt crisis.

In short term, the risks brought by the downgrade are obvious; but in medium and long term, the trend of European debt crisis would rely on the political will of European countries toward the integration process, especially on the fact that whether Greece would withdraw from the euro zone and the possibility of European unified fiscal union. As a result, the medium and long-term influences of sovereign rating downgrade are limited.

Judging from the real economy, the sovereign rating downgrade and the prospect of economic growth rate in the euro zone are unified. In 2012, major economies in the euro zone except German are estimated to continue negative growth. Under conditions of negative economic growth rate, the financial statuses of these countries would not see fundamental improvement.

The first quarter of 2012 is a vital time window for the European debt crisis, and the due debts of countries in the euro zone will focus in this stage. In the first quarter, new bonds worthy 218 billion euro need to be issued, among which 167 billion euro are used to pay the due debts.

Relegating the sovereign ratings of many countries in the euro zone would undoubtedly increase the financing costs of these countries. Further impacts are likely to touch the financing cost of European Financial Stability Fund. If the European Financial Stability Fund couldn’t be established according to the planned scale and financing cost, the European Central Bank will be faced with new pressure.

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