This site and many others deemed the European rescue fund, the European Financial Stability Fund, to be unworkable (among other things, the device of having troubled countries on the hook to finance their own rescues seemed absurd). But it’s one thing to have informed critics view this contraption with skepticism, quite another for a ratings agency to ding it formally.
US investors can still treat the EFSF as AAA based on Moody’s and Fitch AAA ratings. But who with an operating brain cell would buy bonds that are so clearly exposed to downgrade risk?
This means that the ECB will have to monetize periphery country debt in a more direct manner that it has been willing to heretofore to keep them afloat.
The Wall Street Journal has just released a news alert, there is no accompanying story yet on its site:
Standard and Poor’s downgraded its credit rating on Europe’s rescue fund one notch to double-A-plus from triple-A, following its decision last Friday to lower ratings on a number of euro-zone states.
S&P said it could cut the rating on the European Financial Stability Facility further if member states’ creditworthiness is further eroded amid the euro zone’s prolonged crisis.
The two other large ratings firms, Moody’s and Fitch, still rate the EFSF at triple-A.