Europe on downgrade watch

CNNMoney ^ | 12/17/2011

[Signalman]

NEW YORK (CNNMoney) -- There's a good chance France and a few other euro area governments will have their credit ratings downgraded in the near future.

That would mark another low point in Europe's long-running debt crisis, but it may not shock the markets.

"The downgrades are likely to come sooner rather than later," said Ewen Cameron Watt, chief investment strategist for the BlackRock Investment Institute. "But we believe bond markets have largely factored them in for countries such as France, Italy and Spain."

While the bond market may be prepared, the immediate response could be less sanguine in the stock market, where investors have been primed to sell anytime a rating agency makes a move.

Credit rating agencies' warnings or downgrades were behind six major drops in the stock market this year, notes Christian Schulz, a senior economist at Berenberg Bank.

But the sell-offs "were almost always followed by a rally shortly thereafter as the downgrades often triggered positive political action," he added.

Standard & Poor's set the rumor mill in motion earlier this month when it put 15 members of the euro currency bloc on review for a downgrade, including top-rated Germany and France. The agency said it would conclude its review shortly after the latest summit of European Union leaders, which took place on Dec. 9.

[PoloSec]

Europe has been on a downgrade watch for quite some time now, one of these days it will happen.