Eurozone's bailout fund downgraded
Rating agency Standard & Poor's has downgraded the creditworthiness of the eurozone's bailout fund by one notch to AA+.
The downgrade, which follows ratings cuts for AAA-rated France and Austria, could hurt the European Financial Stability Facility's ability to raise cheap bailout money.
While most euro countries guarantee the bonds issued by the EFSF, its rating depends on the AAA countries. The remaining four do not make up enough guarantees to secure the fund's 440 billion euro (£363 billion) lending capacity.
S&P said it could upgrade the EFSF back to AAA if the eurozone offers new credit enhancements.
S&P had warned in December that it would cut the rating of the EFSF in line with the downgrades of any AAA country.
Moody's and Fitch, the other big two rating agencies, still have the EFSF at AAA, meaning that it would count as a top-notch investment for most funds. But analysts warn that further downgrades are likely soon.
Once another big agency cuts the EFSF's rating, the eurozone faces a stark choice - either the fund starts issuing lower-rated bonds - and accepts higher borrowing costs - or its remaining AAA contributors increase their guarantees.
So far, Germany, the biggest of the four AAA economies in the eurozone, has ruled out boosting its commitments to the fund, and increases also appear politically difficult in Holland and Finland.
Another option would be to accept that the EFSF can give out fewer loans.
Because of the EFSF's set-up the bonds it issues to raise bailout money are underpinned by some 720 billion euro in guarantees from the 14 eurozone countries that haven't received bailouts. But for issuing AAA-rated bonds, only AAA-guarantees count, taking the fund's lending capacity down to 440 billion euro.