Fitch puts AAA France on credit watch, says solution to euro crisis is politically beyond reach

12/16/2011 4:23 pm EST


Jim Jubak

Founder and Editor,

I’ve got a new theory about this stock market: Every time the Dow Industrial Average moves up by 0.4%, someone says something deeply depressing about Europe and the euro and drives stocks back down.

Paranoid? I don’t think so. You’re not paranoid if they really are out to get you.

Look at today, for example. U.S. stocks were solidly if modestly in the green—until Fitch Ratings lowered its outlook on France’s AAA credit rating to negative. (Fitch also put Spain, Italy, Slovenia, Ireland, and Cyprus on review for a downgrade.) With that the Dow Industrials went from green to red. The Dow closed  down 0.02% today.

Exactly the same pattern as yesterday when Christine Lagarde, managing director of the International Monetary Fund, took most—but not all—of the green out of stocks by saying that the euro debt crisis was escalating and then comparing the current crisis to the 1930s. (You know Great Depression, rise of Hitler, that kind of stuff.)

The language from Fitch Ratings was not quite as inflammatory today, but still extremely negative “Of particular concern is the absence of a credible financial backstop,” Fitch told Bloomberg. What’s needed is an explicit commitment from the European Central Bank, the company said.

Fitch knows that’s extremely unlikely—which is why it finished today’s announcement by saying that a comprehensive solution to the EuroZone crisis is “technically and politically beyond reach.”

It tells you something about where we are in this crisis that even something so starkly negative as that has led to only a relatively minor retreat in the markets.

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