Jan 9 - This could be a decisive year in determining whether the eurozone
(European Economic and Monetary Union) can emerge from its sovereign debt
troubles, says Standard & Poor's Ratings Services today in the report: "The
Eurozone Debt Crisis: 2013 Could Be A Watershed Year."
It could mark the start of the region sustainably overcoming the market
volatility and fragmentation that has affected it over the past few years. It
could also see the return of some so-called "program countries"--member states
that have borrowed from the European Stability Mechanism (ESM, unrated) or the
European Financial Stability Facility (EFSF AA+/Negative/A-1+) multilateral
loan programs--such as Ireland and Portugal, to more substantial primary
issuance in the capital markets.
"Nevertheless, we believe that investor confidence will only return if member
states continue to make progress in rebalancing their economies, both through
structurally stabilizing public debt and by further reducing external
deficits," said Standard & Poor's credit analyst Moritz Kraemer. "Achieving
this will take a disciplined and transparent response from policymakers both
at national and European levels. Safeguards to the social contract may also be
necessary to assist in the cohesion of those member states suffering from high
unemployment, excessive private leverage, and stagnating or falling living
In our view, this is a challenging but achievable agenda, although
implementation risks loom large. These risks are the main reason that the
majority of our outlooks on our eurozone sovereign ratings are still negative.
Nevertheless, European leaders have laid, or at least announced, much of the
groundwork for the eurozone to emerge from its lingering crisis.
The eurozone's success in reversing its credit trends will depend on national
and pan-European policymakers' responses to the eurozone's continuing
economic, political, and social risks, the report says.
We believe that economic rebalancing has still some way to go and will
seriously challenge political leaders. We are also of the view that the
economic and social costs of economic rebalancing could be more easily
contained if a higher degree of policy coordination were to lead to a more
symmetrical adjustment shared between the eurozone's core external surplus and
peripheral deficit countries, rather than with most of the burden falling on
While there have been noteworthy new policy developments, such as Outright
Monetary Transactions and the ESM, none of these tools have yet been used and
implementation risks remain, the report says. Another key risk, in our view,
would be the sense of complacency that could develop along with an improvement
in market conditions. Complacency could lead to the fragile agreements among
European policymakers unraveling if some consider that the eurozone's troubles
have passed and previously agreed actions can be shelved or watered down.
"We consider that it is too early to firmly state that complacency risk has
materialized. We are of the view, however, that the consensus among European
policymakers may be more brittle than generally appreciated," said Mr. Kraemer.
With the key of successful crisis resolution in the hands of governments, the
electoral calendar remains a vital factor in assessing the future course of
policies as well as progress in crisis resolution. The main elections in 2012,
in Greece, France, and The Netherlands, resulted in governments that took an
overall constructive view on crisis resolution efforts. It is our base case
that the elections we consider the most important in 2013--Italy in February,
Germany and Austria in the autumn--will similarly lead to a continuation of
the current policy path.
The report is available to subscribers of RatingsDirect on the Global Credit
Portal at www.globalcreditportal.com. If you are not a RatingsDirect
subscriber, you may purchase a copy of the report by calling (1) 212-438-7280
or sending an e-mail to email@example.com. Ratings
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