On Friday, the financial crisis in Europe took another turn as Standard & Poor, the same rating agency that cut the AAA rating for United States, downgraded the ratings for 9 euro-zone countries, citing that "the policy initiatives taken by European policy makers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone." Among the top-notch ratings downgraded were France and Austria, which like the United States, fell to AA+. Italy saw its rating fall to BBB+, dangerously close to the junk bond level. Other countries seeing their ratings fall were Slovenia, Slovakia, Spain, Malta, Cyprus, and Portugal. However, avoiding the downgrade was Germany, which kept its AAA rating and its role as the stronghold in the euro-zone.
Although the downgrade was predicted, stock markets on both sides of the Atlantic fell Friday. London's FTSE 100 and Germany's DAX were both done about 1.5%, while indexes in United States fell about 0.5%. The downgrades will mean that the cost of borrowing will be higher for these European nations, and the impact will be seen in two days when France sells over 8 billion euros in bills. After the S&P announcement of increased European bonds, investors sought the US treasuries, sending the yield on 10-year note to 1.87%. Similarly, yield on Germany's 10-year also decreased to 1.76% as the country maintained its strong rating. Meanwhile, as the collective risk of the euro-zone governments increased, demand for euro decreased as the euro hits a 16-month low against the dollar, at $1.2665.
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