S&P takes apart much of Europe

Besides single notch downgrades of France, Austria, Malta, Slovakia, and Slovenia, S&P has announced two notch downgrades for Italy, Portugal, Cyprus, and Spain. Germany, Finland, Luxembourg, and the Netherlands maintain their AAA status. Germany and Slovakia are the only Eurozone nations without negative outlooks. From the S&P statement (via Business Insider):

Today's rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the eurozone. In our view, these stresses include: (1) tightening credit conditions, (2) an increase in risk premiums for a widening group of eurozone issuers, (3) a simultaneous attempt to delever by governments and households, (4) weakening economic growth prospects, and (5) an open and prolonged dispute among European policymakers over the proper approach to address challenges.

All right, but what does this all really mean? From the WSJ's Richard Barley:

While much of the focus has been on France, the country most at risk from a downgrade is Italy ... The pool of investors willing to buy at that kind of rating [BBB+] may be diminished as it falls between two stools, being too risky for traditional government bond buyers but not qualifying for emerging-market specialists to take a look. It could affect the makeup of bond indexes too. Given Italy's vast funding needs, that is a problem.

[CUT]

But finally, it's worth remembering that S&P's opinions about the euro zone are just that: opinions. While the financial system gives them undue heft, they reflect a reality that the market has been dealing with for months: the euro-zone crisis is deep, difficult and here to stay. A downgrade adds a little to the challenge, but doesn't change the big picture.

Here are the revised ratings:

Austria AA+

Belgium AA

Cyprus BB+

Estonia AA-

Finland AAA

France AA+

Germany AAA

Ireland BBB+

Italy BBB+

Luxembourg AAA

Malta A-

Netherlands AAA

Portugal BB

Slovakia A

Slovenia A+

Spain A