First the US was downgraded from AAA to AA+ this summer, but worse news came last night (January 13), with Standard & Poor's downgrading nine euro-zone countries. Among those taking a hit were France and Austria, who both sunk from a AAA to AA+, while Malta, Slovakia, and Slovenia all suffered a one-step downgrade, while Portugal, Italy, Spain, and Cyprus all dropped two steps.
COMMENT: According to S&P, the mass downgrade came because the EU "has not produced a breakthrough of sufficient size and scope to fully address the euro-zone's financial problems."
France is the second largest contributor to European Financial Stability Facility (Europe's economic rescue fund), behind the still-AAA Germany. The drop in France's grade means they will face higher rates and will be less able to contribute efficiently to the EFSF. The nations involved are exploring ways to maintain the EFSF's AAA-rating, in spite of the credit downgrades to its contributors.
The markets already reacted to the news when it was leaked on Friday, leading to a drop in both European and US markets, as well as the Euro hitting a 17-month low against the dollar.
S&P also stated that, of the 16 euro-zone countries, only Slovakia and Germany had a positive outlook, so more downgrades may be expected in the months ahead.
Needless to say, this means that all of us will pay higher interest rates for credit in all forms, including higher interest rates for transportation fares, hotels, conference sites and all travel-related costs that are purchased on the basis of credit.