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S&P Lowers Outlook on Euro-Area Bailout Fund to Negative

Standard & Poor’s cut its outlook on the euro-area bailout fund to “negative,” reflecting a similar move on two euro-area nations that guarantee the facility.

“We have concluded that credit enhancements sufficient to offset what we view as the reduced creditworthiness of European Financial Stability Facility guarantors are not likely to be forthcoming,” S&P said in an e-mailed statement in London today. The negative outlook “mirrors the negative outlooks of France and Austria.”

The EFSF lost its top credit rating in January after earlier downgrades of those nations. S&P said today that it may downgrade the EFSF should it lower the credit ratings of any of the facility’s guarantors rated AAA or AA+, including Germany, France, the Netherlands, Austria, Finland and Luxembourg.

“Today’s rating move is a further wake-up call for policy makers to speed up the start of the ESM, the permanent euro-area bailout mechanism, with the hope that it will be uncorrelated from EMU members’ own ratings,” Thomas Costerg, an economist at Standard Chartered Bank in London, said in an e-mail.

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