Standard and Poors has wreaked havoc in the eurozone, especially downgrading France and Austria from their AAA and Slovakia, Spain, Italy, Cyprus, Malta, Slovenia and Portugal. The consequences of this decision will bring huge detrimental to the countries concerned and thus the euro area, then to the entire European Union.

It all started amid the sterile discussions on Greece’s debt. The Greek government has not reached an agreement with private investors on that haircut of 50%. Thus, the country could go bankrupt in March, because it depends very much of a huge loan from the IMF. Loan will be granted only if Greece will get a deal with its investors. In this point, none of the main actors – Mario Monti, Angela Merkel, Sarkozy or private investors – do not want a bankruptcy of Greece.

France downgrading effects will be felt first in the political sector. Nicolas Sarkozy is with four months before the presidential elections. Sensing the threat of the downgrading, Sarkozy filed a very populist theme with strong implications in the economic area. He is the strongest supporter of the Tobin tax. Economic, France will suffer enormously after the downgrading. Borrowing costs on financial markets will increase and the French banks that hold Spanish, Greek and Italian bonds will be nervous about the possibility that these debts could not paid. France is the second country, after Germany, which has huge bonds of eurozone countries that are struggling to survive.

Amid these problems, investors will demand more compensation and to own bonds are now increasingly riskier bonds see Spain, Italy and Portugal.

Italy is the third EU’s economy. The European Central Bank today made a foray back on financial markets and bought Italian bonds. Whose interest began to grow and reach 7%. Spain and Italy will have difficulties to borrow on the financial markets. In order to curb financial deficits, the two countries will have to implement new and new austerity measures. That means new layoffs and the increasing of the unemployment rate, wich is huge.

Euro falls sharply. It is a good news for exporters, but only for now, because it will not boost the eurozone economy. All countries are implementing austerity measures, the debt increase and the main engine of the European Union, namely Germany, is begining to “cough”. The German exports will suffer from this situation and what is really worrying is that Germany could enter in the downgrade dance, especially because in the first months of the year it was announced that Germany is likely to enter in a mild recession for a couple of months.

The European Financial Stability Fund must struggle to raise money on financial markets. Downgrading France, the second contributor to the Fund, resulted in a reduction of resources from 451 billion euros to 271 billion euros. The Fund has already provided 293 billion Portugal, Greece and Ireland.

Starting today, the next six months will be crucial for the euro area. If Greece does not reach an agreement with its investors and will not get loan from the IMF and at the summit in Brussels, which will take place in two weeks, the franco-german coalition will not reach a consensus agreement concerning the implementation of controling measures of the deficits and will not implement common economic policies, especially in the eurozone, the scenario is far too grim to be described.