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Larger Europe Bailout Fund Could Weigh On Ratings:s&p

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Europe's efforts to ramp up its fight against the euro zone debt crisis could potentially trigger credit rating downgrades in the region, a top Standard & Poor's official warned.

David Beers, the head of S&P's sovereign rating group, said it is still too soon to know how European policymakers will boost the European Financial Stability Facility, how effective that will be and its possible credit implications.

But he said the various alternatives could have "potential credit implications in different ways," including for leading euro zone countries such as France and Germany.

European officials, seeking more resources to protect the euro zone against fallout from its debt crisis, are considering ways to increase the impact of the 440 billion-euro fund by leveraging, although it remains unclear exactly how.

Beers said it was evident, however, that policymakers cannot leverage the EFSF without limits.

"There is some recognition in the euro zone that there is no cheap, risk-free leveraging options for the EFSF any more," Beers told Reuters.


However, one option could involve backing up the fund with money from the European Central Bank, eliminating the need for politically unpopular cash injections from hard-up European governments.

That solution, although potentially reducing the impact on sovereign ratings, would probably increase liabilities in the ECB's balance sheet and possibly leave euro zone countries on the hook for restoring the bank's capital in the event of losses caused by an euro zone default.

Leveraging the EFSF could also result in a downgrade of its own AAA credit rating.

A deeper fiscal union between members of the euro zone, on the other hand, would increase borrowing costs for core European countries such as France and Germany, while providing relief to the more debt-heavy peripheral countries.

Genius, it's almost as if they realise you can't solve a debt crisis with more debt....

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  • 337 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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