Mapping the crisis: Where now for Europe?

Standard & Poor’s raft of eurozone sovereign downgrades last week is the most headline-grabbing development since Investment Week last cast its eye over the state of play in Europe last November.

But with investor sentiment bolstered by the European Central Bank’s three year long-term refinancing operation (LTRO) the loss of France’s AAA rating caused few ripples in markets.

S&P downgraded both France and Austria from AAA to AA+ on 13 January, also lowering its credit ratings for Italy, Spain, Portugal, Slovakia, Slovenia, Malta and Cyprus.

But with another LTRO scheduled for next month, investors are sensing new ECB president Mario Draghi may be more accommodating than his predecessor Jean-Claude Trichet.

The eurozone is nonetheless widely forecast to slip back into recession in 2012, with further downside risks in the shape of disagreements that could scupper Greece’s second bailout package and Hungary’s credit lines. Doubts also remain over the scope of the European Financial Stability Facility, now it too has been downgraded from AAA by S&P.