THE SOVEREIGN DEBT CRISIS The European Financial Stability Fund put on watch by Standard & Poor's

Ratings firms are responsible for the decisions they make, German chancellor Angela Merkel said yesterday, in response to a question about the warning of Standard & Poor's (S&P) that it might do a mass rating cut for countries in the Eurozone. German chancellors said that European leaders would take steps to rebuild confidence at the reunion at the end of the week. "What ratings firms do is their responsibility", Merkel said in a press conference in Berlin.

The maximum AAA rating of the European Financial Stability Fund (EFSF) was placed on watch by ratings firm S&P yesterday, with a view for a downgrade, after making a similar decision on the 15 states of the Eurozone. Out of the countries placed on watch with negative outlook, six have an "AAA" rating, as does the emergency fund of the Monetary Union. The 17 member states of the Eurozone are backing the bonds of the EFSF, which raises money to help troubled European countries by issuing bonds on the financial markets.

The agency may cut the rating of the EFSF by one or two notches, depending on the result of the evaluation of Eurozone countries.

The placing on watch, with a negative outlook, involves a 50% chance of a short term downgrade. The S&P is expecting to make a decision within 90 days, after assessing the countries that back the fund. Approximately half of the financial resources of the EFSF, of 440 billion Euros, have already been spent on the financial bailouts of Greece, Ireland and Portugal.

The American stock market yesterday rose up in the opening, before the announcement by S&P, but shares subsequently fell.

• S&P puts 15 countries in the Eurozone on watch with a negative outlook

Yesterday, Standard & Poor's (S&P) put the long term sovereign ratings of countries in the Eurozone on watch with a negative outlook, according to a report by the ratings firm.

The ratings of France, Germany, Holland, Italy and Belgium are unsolicited (initiated by the ratings firm).

According to S&P, the placing on watch reflects their opinion that "systemic stresses" have increased over the last few weeks to a level which pressures the entire economic block. In the opinion of S&P, this systemic stress is caused by five interconnected factors:

tightening credit, rising government bond yields, squabbling among Eurozone leaders about how to cope with the crisis and the rising risk of a Eurozone recession next year in 2012.

The latter is considered as having odds of about 40% of affecting the entire Eurozone, as a result of the contraction of the economies of Spain, Portugal and Greece.

The ratings watch will focus on three key factors: political, foreign and monetary scores.

The review of the "political dynamic" will focus on national and international efforts to solve the confidence crisis in the markets. Reviews of the "foreign liquidity" will be confined to the borrowing terms, of the governments and banks in the Eurozone alike. The assessment of the "monetary flexibility" will focus on the policy of the European Central Bank to solve the financial and economic issues of countries in the Eurozone.

S&P expects the review of the sovereign credit ratings to be completed as soon as possible, after the EU summit scheduled for December 8th-9th. Depending on changes in those respective scores, the firm may cut the ratings of Austria, Belgium, Finland, Germany, Holland and Luxemburg by one notch, and by two notches for the other countries.

It bears mentioning that S&P also placed the rating of Cyprus on watch with a negative outlook.

The rating of Greece, which currently stands at "CC", indicates the conviction of S&P that the country has a high chance of default.