Today’s downgrade is a decided negative to the extent that such creditworthiness comes further into question (as it certainly has, long before today’s downgrade), or makes the financing of the liquidity necessary to straddle until overall macroeconomic improvement occurs, more in doubt or more dear. This is the principal difference between the downgrade of the U.S. (which, at any time of its choosing could monetize its own debts) and the downgrade of Europe.
The S&P downgrade puts more pressure on Germany to support EFSF and ESM, as the credit of its fellows in the EMU is diminished.
The creditworthiness of longer-term EFSF debt issuance has, from the announcement of the EFSF initiative, always been in doubt because of the perceived lack of credit support from those nations that were effectively guaranteeing their own debt. The downgrade memorializes that concern.
The credit issues leading to the downgrade derive from excessive peripheral sovereign debt and a more widespread excess of private sector debt in Europe (extending even into certain core economies) together with an unwillingness to resolve it and re-capitalize the core holders of that debt.
Creditworthiness is ultimately derived from a combination of wealth (worth) and relative competitiveness. The periphery fails on both those measures and lenders to the periphery are challenged as a result.
Nevertheless, the problem in the Eurozone ultimately rests in the unwillingness of the core, especially Germany, to monetize the problem debt and start over with greater fiscal integration (and the corresponding restrictions on sovereignty) and a better capitalized banking system. Until that changes – more of the same.
On the subject of “more of the same,” there is a reason why there is no deal between Greece and its creditors: What is on the table does not work for the other side. It is fantasy of politicians and bureaucrats in the core, whose banks have now dumped what they could of Greek indebtedness to holders who owe no duty or allegiance to core governments (which are now about to see what true private sector “involvement” really means).