S&P puts Finland and other AAA-rated eurozone countries under observation

France and Germany propose rescue plan for euro on Monday

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The credit rating company Standard & Poors put the AAA rating of long term Finnish loans under scrutiny on Monday evening. S&P put 15 eurozone countries under observation and could reduce their credit rating within 90 days. S&P will consider its classification after an EU summit which is to be held on Friday.
      Countries put under scrutiny included Finland, Germany, The Netherlands, and Luxembourg. S&P says that the current economic crisis in Europe could have negative consequences for Finland.
      Jukka Pekkarinen, director-general at the Ministry of Finance points out that the announcement by S&P has no bearing on the way that Finland has handled its finances. “This is an advance warning and applies to all AAA countries”, Pekkarinen said to Helsingin Sanomat.
     
Pekkarinen says that it is impossible to say how costly a downgrade to AA status would be for Finland. The Ministry of Finance says that Finnish expenditure on interest will be EUR 2.2 billion next year, and a one-point rise in the interest rate would bring additional costs of EUR 250 million.
      “It depends completely on market reactions how much interest will rise”, he said.
      Another credit rating company, Moody’s, warned already last week that the rating of even the best eurozone countries could decline.
      If S&P and Moody’s bring down the ratings of the eurozone countries, the ratings of AAA countries would probably fall to AA. Weaker countries could fall even more
     
German Chancellor Angela Merkel and French President Nicolas Sarkozy commented on the announcements by Moody’s and S&P, saying that they are working purposefully with the other euro countries, and are “using all means to stabilise the eurozone”, Reuters reported.
      The French and German leaders announced earlier on Monday that they want a new EU treaty which would include tighter economic discipline and sanctions on countries that allow their budget deficits to grow too high.
     
They also want eurozone countries to include calls for budget discipline in their constitutions.
      Market reaction to Merkel’s and Sarkozy’s proposal was largely favourable.
     
Minister for European Affairs and Foreign Trade Alexander Stubb (Nat. Coalition Party) said that the proposals “go in the right direction”.
      Stubb said that the possible future changes to the EU treaty could focus on the on the part of the Lisbon Treaty concerning the euro countries. He says that this could be easier than a complete rewrite of the treaty.
     
Finnish Prime Minister Jyrki Katainen (Nat. Coalition Party), said on Monday that he hopes that the Friday summit will lead to more discipline.
      ”It would be good if economic discipline could be strengthened in such a way that existing and future rules will be obeyed, and that they would not be subject to political consideration”, Katainen said.
      What Finland finds negative is that sanctions for violating budgetary discipline are not completely set in advance. Under the agreement reached by Germany and France they can be cancelled by a qualified majority of the member states.
     
EU leaders meet in Brussels on Thursday and Friday for a summit.
      If the leaders do not achieve significant rescue packages and do not commit themselves definitively to tighter budgetary discipline, they would be precluded from getting assistance from the European Central Bank, for instance.
     


Previously in HS International Edition:
  Merkel wants EU countries to pass laws limiting state debt (5.12.2011)

See also:
  What will happen to the euro? (2.12.2011)

Helsingin Sanomat