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Europe has been plunged into a fresh crisis after France admitted it had been stripped of its coveted AAA rating in a mass downgrade of at least half a dozen eurozone countries by the credit ratings agency S&P. Share prices plunged, the euro dropped to a 16-month low against the dollar and the European Central Bank was forced to step in to buy Italian bonds after European sources admitted action by the credit ratings agencies was imminent. Bringing an abrupt end to the uneasy calm that has existed in the eurozone since the turn of the year, the heavily-trailed S&P move rekindled financial market anxiety about a Greek default and possible break-up of the single currency. Nicolas Sarkozy was due to go on national TV to explain the humiliating loss of France's top-rated status, leaving Germany as the only other major economy inside the eurozone with a AAA rating. French finance minister François Baroin downplayed the move, saying it was "not a catastrophe". Germany and the Netherlands were quick to make it clear they were not on the list of targeted countries circulated by S&P to European capitals ahead of an announcement that was expected to be made after the close of business on Wall Street. Investors piled into safe haven assets such as the dollar, while the UK was rewarded with even lower borrowing costs as 10-year bonds slipped below 2%. Britain is not at imminent risk of a downgrade. Mr Baroin was talking on France 2 television. More on what he said: I confirm that France has received, like most eurozone countries, a notification of a change of its rating [...] It's a downgrade, a one-notch change, it's the same agency that downgraded the United States [...] It means we must follow and amplify reforms. We must be bold. We must preserve employment. Mr Baroin says most eurozone countries have been notified of an S&P downgrade.

Any downgrades would also tarnish the credibility of the European Financial Stability Facility (EFSF), the eurozone's €440bn bail-out fund that Angela Merkel and Nicolas Sarkozy fought so hard to secure (and the one that was nearly brought down by Slovakia). If France loses its AAA rating, then Germany would be the only top-rated main backer left. The EFSF is also currently on downgrade review. In December, S&P said: Our 'AAA' long- and 'A-1+' short-term ratings on EFSF are based on (i) the unconditional, irrevocable, and timely guarantees from EFSF members (guarantor members) rated 'AAA' by Standard & Poor's that support EFSF's obligations (bonds, notes, commercial paper, debt securities, or other financing arrangements) and, (ii) the 'AAA' rated securities that constitute EFSF's liquidity reserves. Standard & Poor's has placed the 'AAA' long-term issue ratings on EFSF's guarantor members Austria, Finland, France, Germany, Luxembourg, and The Netherlands on CreditWatch negative (see "Standard & Poor's Puts Ratings On Eurozone Sovereigns On CreditWatch With Negative Implications," published on Dec. 5, 2011), indicating our view of their increased credit risks. In other words, the EFSF is only as good as its backers.