Within the last two hours, S&P has downgraded the eurozone’s EFSF mechanism – a holding fund before the ESM goes live….if it ever does.

This isn’t massive news on the face of it; but as so often with ‘news’, get down past the first few paragraphs and the real significance is there. This extract from S&P’s release is telling….my italics:

‘We have concluded that credit enhancements sufficient to offset what we view as the reduced creditworthiness of European Financial Stability Facility (EFSF) guarantors are not likely to be forthcoming….The negative outlook on the long-term rating on the EFSF mirrors the negative outlooks of France and Austria….’

There are also hints in the verdict that, purely on the basis of being sucked into contributing to further hopeless bailouts, even Germany could find itself downgraded. This is turn would downgrade the ESM…andonadnonandonandon….the vicious circle continues.

One wonders how this afternoon’s Bundestag vote might have gone in the knowledge of this damning outlook. Germany is being told by S&P that it can no longer depend on its ally France. In the context of G20 pressure for Europe to build its own Greek contagion firewall, the options for Berlin are even more constrained.

But then, the Chancellery knew that anyway.