S&P On Europe - NYTimes.com

Paul Krugman comments on the reason for S&P's downgrade of Eurozone countries and, more worryingly, the EU's response:

S&P’s downgrade of a bunch of European sovereigns was no surprise. What was somewhat surprising — and which went unmentioned in almost all the news stories I’ve read — was why S&P has gotten so pessimistic. From their FAQs:

We also believe that the agreement [the latest euro rescue plan] is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the EMU’s core and the so-called “periphery”. As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.

And today we read about the response:

German chancellor Angela Merkel has called on eurozone governments speedily to implement tough new fiscal rules after Standard & Poor’s downgraded the credit ratings of France and Austria and seven other second-tier sovereigns.
Still barreling down the road to nowhere.

For some reason, I just keep thinking of a scene from Nemo, the Disney film (yes, I have little kids), in which the two little fish Dora and Marlin swim straight down into the dark abyss, into the arms of a monster.

All the while, they hum "just keep swimming, just keep swimming!"...

S&P On Europe - NYTimes.com