SUSIE GHARIB: It was a bad luck day for Europe and
world markets on this Friday the 13th. First, it was a rumor and then
after the U.S. markets closed, the ratings firm Standard & Poors announced
that it is stripping France of its AAA credit rating. It is now at AA-plus
with a negative outlook. S&P is also cutting ratings on eight other
Eurozone countries, including Italy, Spain and Portugal. But Tom, there
was no rating change on Germany, Europe`s top economy.
TOM HUDSON: Looking for the silver lining here Susie, these ratings actions are just one more sign of the seriousness and the depth of the debt crisis in Europe. The worries about Europe have been weighing on the market for more than a year now and today, investors were a little bit nervous in anticipation of those expected downgrades. So ahead of that actual news, the Dow Industrials lost about 49 points, rebounding from an earlier loss
of over 150 points. The NASDAQ at the bell was down 14, the S&P 500 closing off by 6.5.
GHARIB: And as Erika Miller reports, Europe`s financial crisis is
likely to remain a crucial issue for investors in the U.S. and around the
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: The S&P downgrade
of European debt has been well flagged. The ratings agency put 15 of the 17
Eurozone nations on review for a mass downgrade over a month ago. But the
sharp sell-off in global markets today illustrates just how nervous
investors are about the region.
SAMEER SAMANA, INT`L INVEST. STRATEGIST, WELLS FARGO ADVISORS: The
entire European situation is one big issue of confidence and whether the
Europeans can act decisively and swiftly enough to restore investor
confidence. Otherwise, this issue that`s been dragging on two more years
could get a little bit worse before it gets better.
MILLER: And if it gets worse in Europe, you bet there will be
reverberations around the globe. Downgrades typically make it more
expensive for countries to borrow money and that increases the risk that
the economic downturn in the region will become more severe.
JEREMY LAWSON, SR. ECONOMIST, BNP PARIBAS: The more expensive it
becomes for them to service debt, that`s eventually going to lead to some
weaker growth of those economies — the need to tighten fiscal policy. So
you are talking about a weaker global growth outlook. It also means
financial markets are just a lot more volatile.
MILLER: But there might be some small benefit for Americans in the
form of lower borrowing costs. If trouble in Europe gets worse, economists
predict the U.S. Federal Reserve will not hesitate to take action in the
form of more quantitative easing or bond buying.
SAMANA: The implication there for both investors and consumers is
while we are seeing historical lows on mortgage rates, while we`ve seen
historical lows on let`s say 10-year and 30-year bond yields, those could
go even lower if the Fed implements another round of quantitative easing.
MILLER: What`s clear is that the New Year does not mean an end to
worries about the situation in Europe. Investors are hoping Europe will get
a better handle on its problems in the coming months. But many economists
warn it will take years before confidence is fully restored.
LAWSON: I think that there will be periods where Europe remains in
the headlines for not just the next year, but into 2013 and 2014. These
issues are going to be with us for a very long time.
MILLER: You can bet those issues will be grabbing headlines again
next week. European regulators are meeting to seek new ways to prevent
western Europe`s banking woes from spreading. Erika Miller, NIGHTLY
BUSINESS REPORT, New York.