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S&P Ratings playoffs – France downgraded, Luxembourg and Netherlands retain AAA | Insight Europe

S&P ratings came through late on Friday, a full day laden of expectations belying the small rally for the Euro from the 16 month low on Wednesday and Thursday as the Euro ended Friday at 1.26 levels again. Seven ratings were unchanged, while 4 countries got a two-notch cut including Italy, Portugal, Spain and Cyprus.

Germany was already known to have kept its AAA rating. Finland, Luxembourg and Netherlands remain AAA with a negative outlook. The current ratings watch was posted on December 5, and needs to be actioned within 90 days. France and Austria are now AA+ with Belgium AA. French spreads were 1.30 to the bund before the announcement. markets open after a three day weekend on Tuesday. Malta, Slovekia and Slovenia were downgraded by one notch each.

Germany is now left with the financial superpowers to back the EFSF which from all reports, seems to have retained its ratings in line with Market CDS movements, Euro maintaining a very small short position to stay in negative territory French 10 year bond spreads moved up 8% yesterday, while even the @ yr spreads trade at more than 50 basis points. France and Italy need to borrow EUR 200 bln and EUR 400 bln this year from the markets. France’s downgrade was expected since August 2011 when US could no tstage manage the increase in its debt Ceiling. JP Morgan’s Bill Daley has thence resigned from his post as the Congress and Senate reconvene to vote on another $1.2 tln increase on Wednesday

Even as the Euro indices ( against 8 currencies) fell 0.4 %, The Dollar index traded above 81, and the Swisss Franc moved to 1.2063, close to the 1.20 peg that would test the new incumbent at SNB after Phillip Hildebrand left under a cloud

As analysts mentioned, there are just 100 days for French incumbent government to feel the aftershocks of this managed announcement(s) before French Elections. French banks have covered most of the EBA concerns with the Capital gap well before the June deadline, left with a EUR 8 bln gap at the Top French banks from more than EUR 50 – 100 bln expected to be funded at the banks including SocGen and BNP.

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