S&P threat to deliver shock for eurozone

Jean-Michel Six, chief economist of the agency that shocked financial markets last week by putting 15 eurozone countries on a watch for a potential downgrade, said last week’s EU summit agreement was a significant step forward, but not enough.

S&P usually takes around three months to act after a warning, but has said that in this case it may do so more quickly.

“There is probably yet another shock required before everybody in the eurozone reads from the same page, for instance a major German bank experiencing some real difficulties on the markets, which is a genuine possibility in the near term,” Mr Six said.

“Then there would be a recognition that everybody is indeed on the same boat and that even German institutions can be affected by this contagion. I’m afraid this may still be required.”

Twenty-six EU countries – all minus Britain – agreed on Friday to go forward with further and deeper economic integration.

But the outcome has left financial markets uncertain whether and when more decisive action would be taken to stem the debt crisis, which began in Greece, spread to Portugal, Ireland, Italy and Spain and now threatens France and Germany.