The Downgrades in Europe Continue

by Marilou Moursund on October 10, 2011

in Banks,Bonds,Credit Crisis,Debt,Economic Indicators,Foreign Markets

Barron”s had a good summary over the weekend of the ongoing debt crisis is Europe titledFrom the linked article:

But the debt and equity markets continue to fret about the European crisis,
which appeared about to claim its latest victim, Dexia Group, a French-Belgian
institution that improbably has a significant role in the U.S. municipal-bond
market. Late Friday, Moody”s put its double-A1 rating of Belgian”s sovereign
debt under review, citing the difficulty it may face in funding its obligations,
given the “challenges” facing Europe”s banks and the increased possibility of
having to bail out Dexia.

That followed Moody”s downgrade of Italy”s sovereign debt earlier in the
week, a three-notch slash to single-A2, which was followed by reductions in
Italy”s and Spain”s credit ratings by Fitch, to single-A-plus and
double-A-minus, respectively. To help provide liquidity to the banks that are
the main creditors to the euro zone, the European Central Bank Thursday said it
will extend its lending plan and purchase up to €40 billion ($54 billion) of
so-called covered bonds—collateralized obligations of issuing banks.

The economic data in the U.S. remains mixed.  The non-farm payroll number was stronger than expected at 103,000, and auto sales are showing improvement after the supply disruptions during the spring caused by the tsunami.  However, unemployment remains stubbornly high at 9.1%.  If Europe can remove some of the uncertainty regarding their banking sector by the end of the month as Merkel and Sarkozy have indicated, we could begin to see some stability in our markets.

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