None of that is much of a surprise, but the warning to France and the UK is rattling the markets. That warning should also not be a surprise, but in this environment where things change rapidly, the markets are jittery.
It's becoming obvious even to the markets that wanted strict austerity in the UK that strict austerity was the wrong direction. The UK economy continues to soften and show little signs of growth, which is a direct result of the poorly planned austerity program by the Conservatives. Keep in mind that the UK economy will only get worse since the harshest cuts are only now being rolled out.
Moody’s Investors Service cut the debt ratings of six European countries including Italy, Spain and Portugal and said it may strip France and the U.K. of their top Aaa ratings, citing Europe’s debt crisis.What also jumps out at this time is how, despite this bad news, the dollar continues to struggle against the euro. The quantitative easing - Bernanke's printing of money - discussion scares the markets.
Spain was downgraded to A3 from A1 yesterday, Italy to A3 from A2 and Portugal to Ba3 from Ba2, all with negative outlooks. Slovakia, Slovenia and Malta also had their ratings lowered.
“Policy makers have made steps forward but we do not think they have done enough to reassure the market that we are on a stable path,” said Alistair Wilson, chief credit officer for Europe at Moody’s in London. “What will guide long-term ratings is the clarity and the performance of policy makers and the macro picture.”