• 21 OCT 2011
Standard & Poor's (S&P) is to warn that a double-dip recession in Europe would imperil France's AAA rating and set off a string of downgrades across Southern Europe, undermining the EU's debt crisis strategy.
By Ambrose Evans-Pritchard | The Telegraph
The EU-IMF bail-out machinery would require an extra €250bn or more to stabilize eurozone debt markets, forcing Germany and EU's creditor states to vastly increase rescue commitments.
The report, due Friday, said a double-dip recession would lead to a downgrade of "one or two notches" for France, Spain, Italy, Ireland and Portugal, both because of tumbling tax revenues and the extra costs of propping up banks.
The scenario looks increasingly likely after Germany slashed its growth forecast from 1.8pc to 1pc for 2012. Greece and Portugal are contracting at alarming speeds. Italy and Spain are already in industrial recession.
"Confidence surveys have fallen off a cliff over past three months," said Marchel Alexandrovich from Jefferies Fixed Income. "The lagged effects of fiscal and monetary tightening are still working their way through the system so it looks highly likely that we are in recession now."
Drastic loan shrinkage as banks rush to meet new capital requirements before next June risk intensifying the downturn, and may lead to a credit crunch. Alberto Gallo from RBS said deleveraging by Europe's lenders could reach €5.1 trillion over coming years, partly through asset sales and run-offs.
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