S&P Warns Europe Ahead of 'Make-Or-Break-Summit' : Planet Money The ratings agency has put 15 eurozone countries on watch for a possible downgrade days before their big meeting in Brussels.
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S&P Warns Europe Ahead of 'Make-Or-Break-Summit'

German Chancellor Angela Merkel with French President Nicolas Sarkozy at a press conference
Eric Feferberg/AFP/Getty Images

Standard & Poor's is putting 15 eurozone countries on watch for a possible downgrade. Why now? It's because of this week's summit in Brussels where European leaders are expected to announce plans for closer economic integration.

S&P is basically saying whatever comes out of this little summit of yours better be good, otherwise, we are downgrading you. Here's how they put it:

If the response of policymakers is not viewed by investors as robust, we believe market confidence could take another, possibly steep, drop downwards, meaning higher refinancing costs for banks and governments, further deceleration of credit and demand, and an even greater required fiscal consolidation effort to arrest deteriorating credit dynamics. Our CreditWatch actions signal our view of the risks to eurozone sovereign creditworthiness should the summit not generate an effective and credible response.

This week's meeting in Brussels has been called a "make-or-break summit" and a meeting on which "the fate of Europe depends." At the helm of this grand gathering are of course — German Chancellor Angela Merkel and French President Nicolas Sarkozy. The meeting doesn't start until Thursday but Merkel and Sarkozy have already drafted their strategy to overcome the national debt crisis.

Here's what Merkel and Sarkozy want to see happen:

1. Automatic penalties for governments that allow their deficit to exceed 3 percent of GDP.

2. Guarantees for private bond investors that they won't be asked to to help pay for future bailouts. No "haircuts" as in Greece.

3. Promises from the 17 euro countries to balance their budgets.

4. No eurobonds (debt issued jointly by all eurozone member countries).

5. An earlier start date for the European Stability Mechanism. This bailout fund was supposed to replace the EFSF now there is talk of keeping of it around even after the ESM launches.

6. These changes in place by March 2012.

These proposals alone won't solve the eurozone's current problems — what these countries really need now is cash. Instead, the hope is that these "tougher" rules will entice investors and the European Central Bank to buy more bonds, effectively loan these countries more money.