With the likelihood of an S&P credit downgrade of France, Spain, Italy, Belgium and Portugal, it’s important to understand that #1, they are just following what the markets have priced in and #2, Fitch and Moody’s in some circumstances have already moved ahead of S&P. With respect to France, they will likely lose their AAA rating at S&P but Fitch specifically said earlier in the week that they will maintain their AAA rating for them thru 2012. On Italy, S&P is currently at A, in line with Moody’s and one notch below Fitch. A downgrade will likely take them to A-. With Belgium, S&P is at AA, one notch above Moody’s and one below Fitch. Portugal has a BBB- S&P rating, two notches above Moody’s and one above Fitch, so catch up is what S&P would be doing with them. With Spain, S&P is already one notch above Moody’s at AA-. We’ll also see whether Austria loses its AAA rating. Following a French downgrade, the EFSF will also lose its AAA rating but buyers of EFSF bonds have certainly been put on notice that it was a high likelihood. I say this all from a credit perspective because equity markets have behaved with a much more sanguine view of things that doesn’t fully square with the reality of a very tenuous global economy.
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