S&P reveal their
Factors Behind Our Rating Actions On Eurozone Sovereign Governments and it must not an easy read for political economists. Regarding the popular concept that government spending was entirely to blame
It is our view that the currently experienced financial stress does not in the first instance result from fiscal mismanagement.
In fact they argue that the problem is structural
the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the EMU's core and the so-called "periphery."
Austerity also gets a mention
we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues.
The re-rating will create further tensions, according to RBS economist
Jacques Caillou
The market implications of the ratings review are worse than a whole downgrade of the region owing to the increased political wrangling, questions on the EFSF/ESM firewall and the fact that flight to quality still has somewhere to go...while the market impact of the downgrades is unlikely to be very significant in the short term, they serve as a stark reminder that the euro area sovereign crisis is here to stay...We continue to expect the crisis to deepen eventually leading to further widening in spreads across countries vis-à-vis Germany.
