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Euro Members Most at Risk ‘Exclusively’ in Periphery, Fitch Says

Euro-area countries most at risk of suffering downgrades are “exclusively” in the so-called periphery where debt rates and deficits are highest, Fitch Ratings Managing DirectorEd Parker said.

“We have half the countries in the euro zone on negative outlook, and some of them have been downgraded in the last year,” Parker said today in an interview in Stockholm. “The most at risk are exclusively in the periphery zone.”

Fitch cut Spain’s rating to within two steps of junk just days before the euro area’s fourth-largest economy on June 9 sought as much as 100 billion euros ($125 billion) to rescue its banks. Fitch gives six of the currency bloc’s 17 members its top AAA grade. Parker said yesterday even those ratings may come under pressure should the region’s woes deepen.

“We see the financial crisis continuing for a considerable period of time,” he said today. “But this can be aided by policy makers continuing to take positive policy steps. The euro zone as originally designed was flawed and the end result will be a euro zone which involves more fiscal and financial integration than we are seeing at the moment.”

Spain’s 10-year yield surged to a record this week as investors doubt Europe’s ability to end the debt crisis. The yield on the 5.85 percent bond due 2022 touched 6.72 percent today.

Fitch, which yesterday downgraded 18 Spanish banks, said the government’s plan to recapitalize its lenders will give them time to clean up their balance sheets.

“This will take time,” James Longsdon, the rating company’s co-head for financial institution ratings in Europe, said in an interview. “Accessing money in the market will be difficult, though.”

To contact the reporter on this story: Toby Alder in Stockholm at talder@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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