looking at the EFSF

 A3 – How are EFSF issues backed?

EFSF issues are backed by guarantees given by the 17 euro area Member States for up to 

€780 billion in accordance with their share in the paid-up capital of the European Central 

Bank (see table in link below below)

http://www.efsf.europa.eu/attachments/faq_en.pdf

key points : 

1) France responsible for   158, 488 in Guarantee Committments or 21.83 percent of EFSF contribution

2) Italy responsible for       139, 268  in Guarantee Committments or  19.18 percent of EFSF contribution

3) Spain  responsible for     92, 544 in Guarantee support or 12.75 of EFSF contribution

4) Germany responsible for 211, 046   in Guarantee Committments or  29.07 percent of EFSF contribution

With France losing their AAA , Spain cut to A and  Italy cut down to BBB+ , approximately 53 percent of the EFSF support for its present AAA rating has been impacted - just looking at these three countries and not considering the other downgrades made by S&P yesterday , key of course being the loss of France and Austria's AAA ratings. Also , it will  be key to listen to what Germany says about providing additional financial support for the EFSF ! 

Also , with the loss of the AAA, what does Sarkozy do as his political life just got tougher ! 

http://www.guardian.co.uk/world/2012/jan/13/france-downgrade-sarkozy-election

President was trailing Socialist rival François Hollande. Now his image as the 'Caped Crusader' of global finance is dented

With less than 100 days until the first round of the French presidential race, the credit-rating downgrade in Paris will seriously complicateNicolas Sarkozy's already difficult bid for re-election.

"If France loses its AAA, I'm dead," Sarkozy told aides in October, according to Le Canard Enchaîné. The president has staked his re-election on convincing France that he is the only person with the guts, strength and character to save it from economic doom. The rating cut will seriously dent his image as the Caped Crusader of the financial world.

Last year the Sarkozy camp defined the AAA as the holy grail of France, not just a point of pride but the cornerstone of protecting the French social model, its ever-present state and generous social safety net. Alain Minc, the economist and Sarkozy advisor, called the AAA, which Paris has clung to for 36 years, a "national treasure". Defending the rating became Sarkozy's mission as he raced between international summits, claiming he would save the eurozone and solve the sovereign debt crisis.

Without the AAA France, which has not balanced a budget since 1974, will pay billions of euros a year in extra interest payments. With low to non-existent growth, a vast social security deficit and a serious hole in state coffers after decades of the French state living beyond its means, the downgrade means France will find it harder than ever to rein in its state finances.

Last month it had become clear there was no way to save the AAA, because of French growth predictions seen as too optimistic. There was also the threat of recession, budget cuts judged to be inadequate, and the huge exposure of its banks to the sovereign debt crisis in Greece, Portugal, Italy and Spain. Sarkozy and his government began downplaying the importance of the AAA to prepare public sentiment. There were cross words across the Channel as some French politicians pointed out the unfairness of the ratings agencies by suggesting that if France was to sink, the debt-ridden UK should too.

Losing the AAA "would be an additional difficulty but not unsurmountable," Sarkozy told Le Monde, rehearsing the tone he is likely to take this weekend. Anyway, whisper some in Elysée circles, the US had already had its rating downgraded and survived.

This change of rhetoric might not convince the French public. The downgrade will increase the financial gloom across France in an election year dominated by the economy.

With the Socialist François Hollande leading the polls and Marine Le Penof the extreme right Front National biting at his heels, Sarkozy is under severe political pressure over the recession and unemployment.

Last month more than half French voters felt losing the AAA would have a big impact on their lives. France is the world's "most pessimistic" country in terms of economic outlook, with the lowest recorded score in more than 30 years, according to a poll this month. "Even in 1978, after the second oil crisis that called into question an entire economic system, the French have never shown themselves as pessimistic as today," Gallup International said.

Up to 15m French people have trouble making ends meet at the end of the month.

One key impact would be on local authorities, many heavily in debt to banks after taking out large loans. French communes have been described as "hundreds of little Greeces" by the economist Karine Berger in the Nouvel Observateur.

At the Elysée some advisers have been briefing political journalists that the fallout from the downgrade is containable and will last 48 hours, not four months, shoring up the mood for the presidential election in April and May.

The downgrade will make political ammunition. Last month Hollande said: "There's a triple failure by Sarkozy: failure in his obligation to increase growth, we're in a recession; failure to reduce unemployment; and failure to reduce the deficit."

Sarkozy will no doubt reply that the Socialists have not done enough to support his efforts to draw up a law on balancing state budgets.

Merkel's life also got tougher ! Watch Germany carefully to see what they plan to do moving forward in light of S&P's actions ....

http://www.spiegel.de/international/europe/0,1518,809143,00.html

With Standard and Poor's decision to punish nine euro-zone countries with downgrades and to strip France and Austria of their AAA ratings, Germany is likely to face additional burdens in the euro bailout fund in order to ensure cheap lending to save the common currency. Some are calling for Chancellor Angela Merkel to abandon plans for a tax cut in Germany.

Following the decision by rating agency Standard & Poor's to downgrade the ratings for nine euro-zone countries, pressure is likely to increase on Germany, the country long viewed as a model during the crisis, but also the one that holds much of the money that is needed to solve it.

In its decision on Friday, S&P stated that Germany's rating is in excellent condition, but experts in the country fear that Berlin's contributions to the euro bailout will have to be considerably greater than initially planned. And Chancellor Angela Merkel of the conservative Christian Democratic Union (CDU) said the downgrade of the nine countries will increase pressure for all the euro-zone countries to solve their budget and debt problems.

After a meeting of CDU leaders on Saturday, Merkel said, "We are now challenged to implement the fiscal compact even quicker ... and to do it resolutely, not to try to soften it." Merkel was referring to the deal agreed in December by 26 European Union member states, with the exception of Britain, to enter into a fiscal pact that would see consolidated budget legislation in all countries and sanctions for violaters. The move by S&P, she said, had not come as a surprise. "We have taken note of this decision," she said. Merkel also noted, however, that "S&P is just one of three ratings agencies."

Frank Schäffler, the finance policy spokesman for the Free Democratic Party (FDP), Merkel's junior coalition partner, said he felt his criticism of Germany's participation in the European Financial Stability Facility (EFSF), the current euro bailout fund, had been indirectly confirmed by S&P. He said the downgrading was likely to have direct consequences for Berlin. The downgraded rating for Austria alone, he told the financial daily Handelsblatt, would mean that "Germany would no longer just have to carry 40 percent, but close to 75 percent (of the burden) to ensure the euro bailout fund EFSF retained its AAA rating."

He said the current German guarantee of €211 billion would no longer be sufficient in order to achieve the volume of aid that had been originally planned. "Over time, that will also impose a burden on the German rating," the FDP politician warned, saying that the "socialization of losses" through the bailout fund could not go on forever.

But during her press conference on Saturday, Merkel sought to downplay worries about the ratings loss. "I was never of the opinion that the EFSF necessarily has to be AAA," Merkel said. "AA+ is also not a bad rating." She added that the "work of the EFSF will not be torpedoed" by the downgrade.

Opposition Calls for Germany to Halt Planned Tax Cut

The center-left, opposition Social Democratic Party (SPD) is using the downgrade to call on the government to cancel tax cuts it is currently planning. "The downgrade is a warning shot for Germany that cannot go unheard," a senior SPD member of parliament, Thomas Oppermann, said on Saturday in Berlin. "It also threatens to create additional burdens for Germany in the scope of the euro bailout fund," the SPD politician stated.

In Berlin, the Finance Ministry rejected the objections, with a spokesperson stating that the austerity measures that had already been passed would stabilize the finances of the euro zone in the longer term. "Our recent experience has shown that the markets have already taken positive notice," the spokesperson said. On Thursday, Italy and Spain completed successful bond auctions at considerably lower interest rates than the kinds of yields the countries had seen in recent weeks. European Central Bank President Mario Draghi even said it indicated "tentative signs of stabilization" for the region. And Luxembourg Prime Minister Jean-Claude Juncker, chairman of the Euro Group which represents the 17 euro-zone countries, also pointed to progress that has been made with reforms.

In the private sector, some expressed anger over S&P's decision. "In light of the wide-reaching reforms in many crisis countries within the euro zone, it is not justifiable," said Rolf Schneider, deputy chief economist for German global insurance giant Allianz. He said major progress had been made at the December EU summit where the fiscal pact had been agreed to.

S&P Expresses Disappointment over EU Leaders

On Friday, S&P issued downgrades for Italy, Spain, Portugal, Slovakia, Slovenia, Malta and Cyprus as well as France and Austria, which lost their AAA ratings. S&P officials said that European politicians hadn't done enough to contain the debt crisis. The ratings agency said it had also been disappointed by the results of December's EU summit. The S&P experts warned "that credit availablility and economic growth might decelerate" in the euro zone. It added that European politicians were still divided over the correct approach to solving the crisis.

In France, the euro-zone's second-largest economy, the opposition has taken the downgrade as an opportunity -- coming as it does three months before the French go to the polls to elect their next president -- to sharply attack President Nicolas Sarkozy. Francois Hollande, the Socialist Party's (PS) candidate for president, accused the government of failure. "Nicolas Sarkozy declared the triple-A rating to be the goal of his politics and also a condition for his government," the politician said during a press conference in Paris.

Only Four Euro-Zone Countries Still Retain AAA Ratings

In an interview given to French public TV station France 2 on Friday night, Finance Minister Francois Baroin sought to minimize the potential damage. "It is not the ratings agencies that dictate France's policies," he said. He also called on people to remain calm, stating that while losing the AAA rating is not good news, "it is not a catastrophe." France retains an excellent rating, he said.

S&P now considers the outlook to be negative for 14 countries, even if some managed to escape a downgrade this time. The rating agency stated there is a one in three chance that those countries would be downgraded this year or next. Besides Germany, Slovakia is the only other country in the euro zone with a stable outlook, according to S&P.

In early December S&P, the United States' largest ratings agency, placed ratings for the euro-zone states under greater scrutiny. After Friday's decision, the only remaining euro-zone countries that still possess the top AAA rating are Germany, the Netherlands, Finland and Luxembourg.