S&P Warns it May Downgrade Germany, Five Other Euro States

Credit agency Standard & Poor’s has warned that it may downgrade the AAA rating on Germany and five other European nations with sterling debt ratings, amidst the continuing carnage of the Euro zone debt crisis.

S&P said it will place Germany, France, Holland, Austria, Finland and Luxembourg on CreditWatch negative, according to a report in the Financial Times, citing a statement letter from the company.

The aforementioned designation suggests a 50 percent chance of a downgrade within 90 days, FT said.

While some market participants have been expecting a possible downgrade of France, such a measure on Germany (arguably the strongest economy in Europe) would be a shock.

FT reported that S&P warned the six nations: “It is our opinion that the lack of progress the European policymakers have so far made in controlling the spread of the financial crisis may reflect structural weaknesses in the decision-making process within the euro zone and European Union.”

With specific respect to Germany, S&P said it is concerned about “the potential impact… of what we view as deepening political, financial, and monetary problems with the European economic and monetary union.”

The development comes as German Chancellor Angela Merkel and French President Nicolas Sarkozy have jointly demanded that the rules governing the European Union (EU) treaty be toughened up in order to ensure fiscal responsibility and avert another financial crisis.

S&P was widely criticized for downgrading the AAA credit rating of the United States last August.