90 seconds at 9 am with BNZ: Merkel and Sarkozy to propose new EU treaty with tougher budget rules; Italy slashes spending; NZ$ hits 78 USc

Problem is skudiv.....the impostion of sanctions will just be a completetion backwards principal...a diplomatic out for France ..Germany ...and whoever gets onside.

 It's a breakup in slowmo....they already know who the likely unwanteds will be ,and can then say ...well we tried ,....it wasn't us.

Ahhhhhhh the rise of...Bleau Reich...a new new new World order!

Yeh right Skiduv,

Guess whose industrial products, the "irresponsible" PIIGS were buying. If they were forced to become responsible, Germany and France's economies would tank into a deep recession. In order for them to have a trade surplus, others must necessarily have a deficit.

No ratings cut for the UK?  I am surprised as their gross debt to GDP is the second highest in the world.  Wont be long then.  Japan to follow?  Thankfully we are not affected by these events, Building a brighter future-Back to surplus 2014!

How does FT get this before anyone else, phone hacking? Not a good look for S&P in any case...

Wouldn't want anyone to think they were influenced by public opinion Wolly.

Was just reading about how the charter schools scheme has worked out in the UK.  Predictably, it's just a rort for the usual Board of Directors parasite crowd.  Award themselves the big taxpayer-subsidised salaries for doing eff-all, and skim the money for them off the teacher salaries, teaching materials and maintenance. 

Wolly the irony is that most people will spend 10-15years of their life in the education system, and most of them can barely add and spell.  They can't calculate the third angle of a triangle, define a verb, or explain opportunity cost.  Let alone E=mc2, or the origin of the metric system.

The only solution is to spend more on education.  /s

Not a stupid question Wolly:

http://www.realeconomy.co.nz/235-neville_bennett_2006_how_reser.aspx

"Neville Bennett writes on the monetary policy problems facing the traded economy in September 2006.  He notes the ever increasing money supply's impact on inflation control, the appearance of a property bubble and the impact on the exporters.  

This insightful piece demonstrates the inevitability of our current economic problems.

Monetary policy creates vicious cycle of debt

Monetary policy over the past couple of years has been a disaster. The latest interest rate policy statement indicates inflation has got away and more interest rate rises are likely."

and read on.

Join the dots... Reserve requirements in NZ, Aus, Sweden & Canada = 0%.  How about in the UK? 0% again.  And what about the Eurozone? A very conservative 2%.

Thank god the Eurozone is conservative...

What happens to the unpayable debt?  This is the elephant in the room, everyone is talking about the banks, and solvency, liquidity, deficits, intergration etc.  Political muttering about these "solutions" will not change the fact that there is no money and everyone is broke.  Greece can't even pay it's own Politicians without borrowing, let alone reduce its debt, interest costs are 16% of revenue, and thats at the current rate of 4.5% interest. 

Who is going to pay the money they owe, and how are they going to pay it.  That is the Euro Crisis right there.

Yes, so predictable for the self-righteous, sactimonious, jerks in the National Party and ACT to zombie-like, trudge along the path already tread by their likeminded ilk in Britain's New Labour and Conservative Parties, when they introduced similar reforms years ago. Not an original thought in their moronic heads.

She had been sent to a private ‘welfare to work’ provider whose regime included putting claimants to work without pay in businesses, charity shops and public sector workplaces. Although regulations meant that she could only be obliged to work for up to 12 weeks without pay, she worked for 24 weeks, fearing she would have her benefits stopped if she did not agree. "

http://www.redpepper.org.uk/all-work-and-no-pay/ 

Stephen, it would be far better for the government to ensure Kiwis actually have adequate spending power to buy goods and services on the local market, rather than continuing to rely on the wealth mirage of selling each other houses at exorbidantly inflated values. But as you say, people don't want to hear that. Deficit spending only serves to postpone the inevitable adjustment from the years of excess. The bill will come due eventually as the Eurozone are finding out. It only provides financiers with a political lever to force governments to introduce reforms that otherwise not be palatable.

"Crises force significant policy reforms on a government. Hence my reference to a dangerous moment. In a crisis, there is little enough time to act, let alone think. The exact nature of the crisis will determine what reforms are needed and in what order.  "

http://www.imf.org/external/np/speeches/2004/091004.htm 

More detail from S&P:

Credit FAQ: Factors Behind Our Placement Of Eurozone Governments On CreditWatch

Standard & Poor's Ratings Services today placed its long-term sovereign ratings on 15 members of the European Economic and Monetary Union (EMU or eurozone) on CreditWatch with negative implications. We now think that there is at least a one-in-two chance that we will lower each of the ratings that we have placed on CreditWatch.

We have also maintained the CreditWatch negative status of our long-term rating on Cyprus and placed its short-term ratings on CreditWatch with negative implications. The CC/Negative/C ratings on Greece have not been placed on CreditWatch.

WHAT PROMPTED THE CREDITWATCH PLACEMENTS?

In our view, systemic stress in the eurozone has risen in recent weeks and reached such a level that a review of all eurozone sovereign ratings is warranted.

We believe that this systemic stress emanates from five interrelated factors. We also believe that these factors influence the creditworthiness, in varying degrees, of all the members of the eurozone.

• Banks operating in the eurozone have tightened credit conditions markedly. They have done so in response to: (i) higher prospective capital requirements from the European Banking Association or from Basel III; (ii) worsening asset quality both in their loan books and their government bond portfolios; and (iii) a spike in their marginal funding costs.
• Banks and portfolio investors alike have also started to require significantly higher risk premiums for an increasing number of eurozone sovereign issuers, including 'AAA'-rated sovereigns. In addition to country-specific factors (such as high borrowing requirements in the first quarter of next year), we believe that these higher premiums reflect: (i) prospective changes in the composition of these governments' creditor classes (with official creditors, enjoying presumed preferred creditor status, having a greater share of outstanding debt); (ii) changes in the regulation of credit default swaps and their perceived utility as hedge vehicles; and (iii) the lower capacity of some government bond market makers to carry inventory.
• The open and prolonged dispute among European policy makers over the proper approach to provide official assistance on behalf of the EU and the funding amounts necessary to reverse declining investor sentiment, which we believe is in turn negatively affected by what many investors consider to have been reactive and insufficient policy responses to date.
• High levels of government and household indebtedness. The government indebtedness has led most eurozone governments to undertake fiscal consolidation programs to stabilize their debt to GDP ratios and thus to restore fiscal room to manoeuvre. High household indebtedness coupled with rising economic uncertainty has increased precautionary household savings in an attempt to reduce leverage in an uncertain economic climate, thereby reducing consumer spending.
• Weakening growth prospects for 2012. In our view, signs of what we see as Europe's approaching recession were foreshadowed in the so-called periphery and the economic strain is now increasingly being felt in the eurozone's core of France and Germany. The composite purchasing managers index (PMI) for France and Germany dipped below the 50-point mark in October--typically a signal of recession--continuing the downtrend it started in September. Also, in October Italy's composite PMI recorded its sharpest monthly decline since 2009. In revising our forecasts for 2012, we have once again lowered our 2012 real GDP growth forecasts. We now expect a mild recession in the first half of 2012 in the eurozone, ahead of a modest pick up in the second half of the year. We anticipate eurozone real GDP growth to average 0.4% next year. (see "European Economic Outlook: Back In Recession", published Dec. 1, 2011) We believe that the deteriorating macroeconomic outlook is partly reflecting the declining confidence of economic agents in European policymakers' ability to arrest the current financial crisis. We assign a 40% probability of an outright recession with negative GDP growth in the eurozone for 2012 (see "The Specter Of A Double Dip In Europe Looms Larger", published on Oct. 4, 2011).

WHY ARE YOU TAKING THESE ACTIONS NOW BEFORE A MAJOR SUMMIT?

We are of the view that the upcoming European summit on December 8 and 9 provides an opportunity for policymakers to break the pattern of what we consider to have been defensive and piecemeal measures to date, overcome individual national interests and preferences, and advance a credible response to the crisis that would go far towards restoring investor confidence. We believe that the risks of a deepening and broadening of the crisis have risen markedly and the repercussions of this development will in our view be felt across the monetary union, considering the interconnectedness of the EMU economies and financial markets. If the response of policymakers is not viewed by investors as robust, we believe market confidence could take another, possibly steep, drop downwards, meaning higher refinancing costs for banks and governments, further deceleration of credit and demand, and an even greater required fiscal consolidation effort to arrest deteriorating credit dynamics. Our CreditWatch actions signal our view of the risks to eurozone sovereign creditworthiness should the summit not generate an effective and credible response.

The confluence of negative developments described above has in our view significantly raised the stakes for the upcoming summit. We believe that the failure to present a strategy that would in scope and content address investors' concerns could weigh more heavily on financing conditions than what we observed in the aftermath of previous summits and significantly exacerbate recession risks.

WHAT SORT OF RESPONSE BY POLICYMAKERS DO YOU THINK MIGHT ADDRESS THESE CONCERNS?

When making his inaugural address before the European Parliament on Dec. 1, 2011, ECB president Mario Draghi spoke of a "new fiscal compact". The details of this fiscal compact are for government officials to determine, but to be considered credible, it would likely need to imply, for example, a greater pooling of fiscal resources and obligations as well as enhanced mutual budgetary oversight. We believe that without such an agreement, the relatively high perceived credit risks associated with specific sovereigns might restrict the willingness of the ECB to step up its interventions under its Securities Markets Programme (SMP) for the implicit purpose of staunching further declines in government bond prices. We observe that previous summits' initiatives to counter the adverse market conditions through enhanced mechanisms surrounding the European Financial Stability Facility (EFSF) have by themselves not had the desired impact.

It is our view that national governments would need to continue to pursue reforms in order to bring production and consumption more into balance in their respective economies. For debtor nations, this will likely entail not only greater public sector savings but also measures that boost exports and increase the flexibility of labour, product, and service markets. As the European economy slows, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand shrinks in line with citizens' concerns about job security and disposable incomes, eroding the revenue side of national budgets. We believe that a strong and credible commitment to a balanced reform agenda by governments whose bonds have come under particular pressure will furthermore likely be an additional prerequisite for the ECB to engage in a more aggressive intervention policy. In principle, the fact that new governments have taken office (or are about to) in Italy, Greece, Spain, and Belgium could bode well for accelerated policy implementation. Nevertheless, we anticipate that the ECB will remain wary of moral hazard, especially following the perceived hesitance in the implementation of measures in Italy following the ECB's expansion of bond-buying to include Italian bonds in August 2011. This might make a significant front-loading of reform legislation in debtor countries another precondition for the ECB to deploy more of its monetary flexibility, complementing the governments' eurozone-wide policy response. For creditor nations, the rebalancing could, for example, entail not only greater EU fiscal transfers but also measures to raise productivity in the non-tradable sector, which could create demand without exacerbating external imbalances (see "Who Will Solve the Debt Crisis", Nov. 10, 2011).

HOW ARE THESE CONSIDERATIONS TAKEN INTO ACCOUNT IN YOUR RATING ANALYSIS?

The five key factors that form the foundation of our sovereign credit analysis are the relevant government's: (i) institutional effectiveness and political risk, (ii) economic structure and growth prospects, (iii) external liquidity and international investment position, (iv) fiscal performance and flexibility, as well as debt burdens; and (v) monetary flexibility (see "Sovereign Government Rating Methodology And Assumptions", published June 30, 2011). We see three of the five factors as particularly contributing to our review of the risk profiles of eurozone sovereigns.

Political.

In addition to the protracted debate about the nature of the eurozone's systemic stress and the needed remedy, we see the consistency, predictability, and effectiveness of policy coordination among eurozone institutions as potentially unsupportive of eurozone sovereign ratings at current levels. The consensual European decision-making process has in our view led to a slow and reluctant response to the crisis. Policymakers appear to have acted only in response to mounting market pressures, rather than proactively leading market expectations in a way that might have better supported and strengthened investor confidence. We take the view that the defensive and piecemeal nature of this response has helped expand the crisis of confidence in the eurozone, prompting the likelihood that aggressive policy measures will be needed to rekindle investor appetite in eurozone government debt.

External liquidity.

For countries in net external liability positions, including the eurozone's peripheral economies, we see growing risks to the funding of their external requirements. In our view, financial institutions located in countries in net external asset positions (such as Germany) also face pressure where the quality of those assets is deteriorating. Deleveraging by European banks is intensifying, as they reduce their balance sheets amid worsening funding conditions, look to bolster their capital ratios, and address concerns about deteriorating asset quality among their borrowers. By our estimates, a sample of 53 large eurozone banks from 12 countries will face bond market maturities of an historic record of over €205 billion in the first quarter of 2012, which is 1.5 times the average first-quarter amount between 2006 and 2011 and over twice the respective maturities that fell due in the third and fourth quarter of 2011. The above-referenced maturities do not include private placements, which are a significant part of banks' funding strategies in some eurozone countries. While we expect large European corporations to rely more on bond markets to finance themselves, we believe small and medium size enterprises and households will experience tighter credit conditions, implying lower investment and weaker growth.

Regarding eurozone sovereign borrowing requirements, we believe that those governments that rely heavily on non-resident funding are particularly at risk of impaired market access, and that "home market bias" explains part of the recent bifurcation by yield of eurozone members' sovereign debt markets. (See "Why Trade Imbalances For Creditors As Well As Debtors In The Eurozone Are Weighing On Growth", Dec. 1, 2011.)

Monetary flexibility.

We will analyze the policy settings of the ECB to address the economic and financial stresses now being experienced by eurozone sovereigns. In particular, we will examine the potential impact these policy settings will have in both staunching the eurozone's increasing output gap and ameliorating its currently dislocated debt markets. As described above, we believe that the monetary policy reaction to the financial crisis will at least partially depend on the crisis response by European policymakers.

WHEN WILL YOU RESOLVE THE CREDITWATCH STATUS?

We expect to resolve the CreditWatch actions after the European Summit to be held on December 8 and 9. We typically resolve CreditWatch actions within 90 days, although we will attempt to resolve them sooner, if possible. We aim to announce the outcomes for all affected eurozone governments at the same time.

HOW FAR COULD YOU LOWER THE RATINGS ON CREDITWATCH?

We believe at this juncture that our long-term ratings on Austria, Belgium, Finland, Germany, Luxembourg, and the Netherlands are not likely to fall by more than one notch, if at all. We believe that our long-term ratings on the other 10 eurozone sovereigns are not likely to fall by more than two notches, if at all.

RELATED CRITERIA AND RESEARCH

• Sovereign Government Rating Methodology And Assumptions, June 30, 2011
• Standard & Poor's RPM Measures The Eurozone's Great Rebalancing Act, Nov. 21, 2011
• Who Will Solve The Debt Crisis?, Nov. 10, 2011
• European Economic Outlook: Back In Recession, published Dec. 1, 2011
• The Specter Of A Double Dip In Europe Looms Larger, published on Oct. 4, 2011
• Why Trade Imbalances For Creditors As Well As Debtors In The Eurozone Are Weighing On Growth, Dec. 1, 2011

The ratings on France, Germany, The Netherlands, Italy, and Belgium are unsolicited.