While Eurozone credit downgrades are currently high up the news agenda, there’s been less reporting of the reasoning behind their issue. The Standard and Poors’ press releases aren’t easily publicly accessible, but Stephanie Flanders has a good summary here, pointing out that:
A major ratings agency has now joined the side of those who say fiscal austerity, as the central plank of the response to the eurozone crisis, is doing more harm than good
She concludes that not one recent downgrade has been due to the ratings agency thinking the government in question was not sufficiently committed to deficit reduction, with fears of external contagion and poor future economic growth forming the basis for their decisions.
This analysis leads Standard and Poors to conclude that:
a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues
The austerity debate will continue – but the number calling for a priority to be placed on jobs and growth is growing.