Economy

And Why Not Germany? Ratings Downgrades Leave Europe More Divided Than Ever

Analysis: A French look at the euro zone's prospects after Standard and Poor’s (S&P) downgraded the public debt of half of the euro zone. Not only did France lose equal partnership with Germany, Italy risks sinking further into crisis. Bu

European Central Bank, Frankfurt (DuckyDebs)
European Central Bank, Frankfurt (DuckyDebs)
Catherine Chatignoux

BRUSSELS - Standard and Poor's downgrading of France's rating, and that of eight of its European neighbors, is the latest cold blow for the euro zone. During the "black Friday" announcement, S&P took aim at Austria, which like France lost its triple A rating, as well as Malta, Slovakia and Slovenia which were each downgraded by one notch, while Italy, Spain, Portugal and Cyprus' ratings were each cut by two notches. In addition, 14 of the 17 euro-zone countries were given a negative outlook, meaning that they are are likely to be downgraded within a year.

S&P could have downgraded the whole euro zone as a block. But by choosing to deal with each country separately, it has created a risk of increased political and financial tensions across the entire currency zone.

The market implications are "worse than a downgrade for the entire euro zone, because of the likely political disagreements, debates about the amount of the financial firewall and investor anxiety," says one analyst at the Royal Bank of Scotland (RSB). The S&P's decision, however, was primarily motivated by the "insufficiency" of European leader's response to the crisis in the past few weeks, most notably during the European summit that took place on December 9.

Moritz Krämer, S&P's European director, explained that beyond the weak response, there was also an incomplete evaluation of the causes of the crisis. "The political environment around the euro does not stand up to the challenges of the crisis," he said.

Germans get off easy

But Germany, which escaped even a warning from S&P, is at least as responsible for the euro zone's response to the financial crisis as the other euro countries. In fact, considering Germany's role as a leader in the euro zone, it is probably even more responsible for Europe's response to the crisis than its neighbors. Yet Germany was the only euro-zone country to maintain both a triple A rating and a stable outlook.

For many, both within European institutions and inside Nicolas Sarkozy's entourage, the setback inflicted on euro-zone countries by S&P confirms a continuing lack of understanding regarding the euro zone's work. "Germany is the big winner in this exercise, and will see its negotiation power reinforced," the RBS said. Thierry Breton, the former French minister of the economy, put it bluntly: "Berlin is alone in the cockpit."

The first consequence of the "decoupling" in status of Berlin and Paris, is that France, which already was having trouble convincing Germany to increase its commitment to the euro-zone rescue, will now find itself with even fewer cards in hand. If, as is emerging, the rating of the European Stability Fund is based largely on France and Austria's rating, then the euro zone will be left with only two choices: either Europeans will have to accept a reduction in the Stability Fund's capacity (which is currently around 170 million euros, according to the RBS), or the four euro-zone countries that still have a triple A rating will have to increase their guarantees.

Based on Angela Merkel's comments on Saturday, the later scenario seems unlikely. Yet that firewall is, at the moment, the only barrier against a crisis contagion in Italy, which, according to Moritz Krämer, is going to have to find 130 billion euros between now and April, and 300 billion euros by the end of 2012.

In addition, Berlin will now be able to use its rating to continue to impose a purely "budgetary" response to the crisis on all of its partners. This past weekend, Angela Merkel requested that the budgetary pact that is currently being negotiated be implemented quickly. "It's not about trying to mitigate the crisis everywhere one can, it is about giving solid financial guarantees for the future," she said.

Read the original article in French

Photo - DuckyDebs

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Protests against gasoline price hikes in Lebanon

Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

👋 Wai!*

Welcome to Thursday, where leaked documents show how some countries are lobbying to change a key report on climate change, Moscow announces new full lockdown and the world's first robot artist is arrested over spying allegations. Meanwhile, German daily Die Welt looks at the rapprochement between two leaders currently at odds with Europe: UK's BoJo and Turkey's Erdogan.

[*Bodo - India, Nepal and Bengal]


🌎  7 THINGS TO KNOW RIGHT NOW

• Documents reveal countries lobbying against climate action: Leaked documents have revealed that some of the world's biggest fossil fuel and meat producing countries, including Australia, Japan and Saudi Arabia, are trying to water down a UN scientific report on climate change and pushing back on its recommendations for action, less than one month before the COP26 climate summit.

• COVID update: The city of Moscow plans to reintroduce lockdown measures next week, closing nearly all shops, bars and restaurants, after Russian President Vladimir Putin announced a nationwide seven-day workplace shutdown from Oct. 30 to combat the country's record surge in coronavirus cases and deaths. Meanwhile, India has crossed the 1 billion vaccinations milestone.

• India and Nepal floods death toll passes 180: Devastating floods in Nepal and the two Indian states of Uttarakhand and Kerala have killed at least 180 people, following record-breaking rainfall.

• Barbados elects first ever president: Governor general Dame Sandra Mason has been elected as Barbados' first president as the Caribbean island prepares to become a republic after voting to remove Queen Elizabeth II as head of state.

• Trump to launch social media platform: After being banned from several social media platforms including Facebook and Twitter, former U.S. President Donald Trump announced he would launch his own app called TRUTH Social in a bid "to fight back against Big Tech." The app is scheduled for release early next year.

• Human remains found in hunt for Gabby Petito's fiance: Suspected human remains and items belonging to Brian Laundrie were found in a Florida park, more than one month after his disappearance. Laundrie was a person of interest in the murder of his fiancee Gabby Petito, who was found dead by strangulation last month.

• Artist robot detained in Egypt over spying fear: Ai-Da, the world's ultra-realistic robot artist, was detained for 10 days by authorities in Egypt where it was due to present its latest art works, over fears the robot was part of an espionage plot. Ai-Da was eventually cleared through customs, hours before the exhibition was due to start.

🗞️  FRONT PAGE

"Nine crimes and a tragedy," titles Brazilian daily Extra, after a report from Brazil's Senate concluded that President Jair Bolsonaro and his government had failed to act quickly to stop the deadly coronavirus pandemic, accusing them of crimes against humanity.


📰  STORY OF THE DAY

Erdogan and Boris Johnson: A new global power duo?

As Turkey fears the EU closing ranks over defense, Turkish President Erdogan is looking to Boris Johnson as a post-Brexit ally, especially as Angela Merkel steps aside. This could undermine the deal where Ankara limits refugee entry into Europe, and other dossiers too, write Carolina Drüten and Gregor Schwung in German daily Die Welt.

🇹🇷🇬🇧 According to the Elysée Palace, the French presidency "can't understand" why Turkey would overreact, since the defense pact that France recently signed in Paris with Greece is not aimed at Ankara. Although Paris denies this, it is difficult to see the agreement as anything other than a message, perhaps even a provocation, targeted at Turkey. The country has long felt left out in the cold, at odds with the European Union over a number of issues. Yet now President Recep Tayyip Erdogan is setting his sights on another country, which also wants to become more independent from Europe: the UK.

⚠️ Outgoing German Chancellor Angela Merkel always argued for closer collaboration with Turkey. She never supported French President Emmanuel Macron's ideas about greater strategic autonomy for countries within the EU. But now that she's leaving office, Macron is keen to make the most of the power vacuum Merkel will leave behind. The prospect of France's growing influence is "not especially good news for Turkey," says Ian Lesser, vice president of the think tank German Marshall Fund.

🤝 At the UN summit in September, Erdogan had a meeting with British Prime Minister Boris Johnson at the recently opened Turkish House in New York. Kalin says it was a "very good meeting" and that the two countries are "closely allied strategic partners." He says they plan to work together more closely on trade, but with a particular focus on defense. The groundwork for collaboration was already in place. Britain consistently supported Turkey's ambition to join the EU, and gave an ultimate proof of friendship after the failed coup in 2016.


➡️ Read more on Worldcrunch.com

📣 VERBATIM

"He has fought tirelessly against the corruption of Vladimir Putin's regime. This cost him his liberty and nearly his life."

— David Sassoli, president of the European Parliament, wrote on Twitter, following the announcement that imprisoned Russian opposition leader Alexei Navalny was awarded the 2021 Sakharov Prize for Freedom of Thought, the European Union's highest tribute to human rights defenders. Navalny, who survived a poisoning that he blames on the Kremlin, is praised for his "immense personal bravery" in fighting Putin's regime. The European Parliament called for his immediate release from jail, as Russian authorities opened a new criminal case against the activist that could see him stay in jail for another decade.

💬  LEXICON

魷魚的勝利

Chinese video platform Youku is under fire after announcing it is launching a new variety show called in Mandarin Squid's Victory (Yóuyú de shènglì) on social media, through a poster that also bears striking similarities with the visual identity of Netflix's current South Korean hit series Squid Game. Youku apologized by saying it was just a "draft" poster.

✍️ Newsletter by Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

Anyone want to guess Trump's first post on his upcoming social media platform...? Let us know how the news look in your corner of the world — drop us a note at info@worldcrunch.com!

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