The ratings agency Standard & Poor’s recently downgraded the economies of nine European countries. In particular, the government debts of France, Austria, Malta, Slovakia and Slovenia were downgraded by a single notch, while the ratings of Italy, Spain, Portugal and Cyprus were reduced by two notches.
Another blow to the European economies was struck today by the US Fitch rating agency when it lowered the credit ratings of five countries by one notch and placed a negative outlook on all of them, as well as on Ireland. The countries that were affected consisted of Belgium, Cyprus, Italy, Slovenia and Spain.
While the Greek economy has been in free fall for months and Italy, Spain and Portugal also have been struggling, the EU took another action recently that essentially shot itself in the foot. Following the US Congress passage of the Iran Threat Reduction Act, which led the US to put restrictions on any company in the world that trades with Iran, the EU adopted a plan to stop all purchases of oil from Iran. Since Greece, Italy and Spain still import considerable amounts of oil from Iran, these countries now must scramble to find other sources. Consequently, the price of oil is expected to increase further harming the EU economies. Also, these countries may not be able to wait out the six months grace period. The Iranian parliament is discussing a bill this week that will order the government to stop all oil export to the EU immediately. Essentially, Iran is striking back at the EU for its hasty decision.
When the sanctions on oil purchase were decided, Catherine Ashton, the EU foreign policy chief said, “The purpose of sanctions is to put pressure on Iran to come back to the negotiating table.” This claim is rather curious since Iran has all along said that it is ready for negotiations. However, the West appears to consider negotiation itself as a reward and has not been ready to offer anything positive to Iran. Still, there are statements by both sides that some sort of negotiation may happen, perhaps in Turkey, in the near future.
Another blow to the Iranian oil sales has been the US and EU ban on dealings with the Iranian Central Bank which handles oil sales in dollars, the standard currency for oil transactions. As the attached video shows, India and perhaps China now plan to buy Iranian oil using gold, bypassing the restrictions on the Iranian Central Bank. As a result, the value of gold will increase and the value of the dollar is probably going to decrease. So, perhaps, the US is also shooting itself in the foot since China and India have no plans to reduce their purchases of Iranian oil.
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