Downgrades Hit Europe; PIMCO’s Gross Sees Greek Default

Bailly added, "We take note indeed of what Standard & Poor's decided last Friday, but we believe, as vice president Rehn and the commission have said, that it is inconsistent on substance and it's really odd as far as the timing is concerned."

Perhaps not quite so odd, as talks between Greece and its creditors broke up without a resolution last week as some creditors appeared to be holding out for complete repayment of debt through triggering of credit default swaps. As reported last week by AdvisorOne.com, a number of hedge funds have invested in Greek debt and some are optimistic that they can receive full repayment by insisting that CDS be triggered. Greece and the eurozone are trying to avoid that, since it would have unforeseen consequences for the currency bloc, substantially escalate the crisis and even force Greece from the group.

There is concern about the focus on austerity measures, however, to the exclusion of steps taken to stimulate growth—particularly Germany's insistence on budgetary discipline. In a Huffington Post report, Bart van Ark, chief economist at the Conference Board, said that investors fear Germany is mistaken in its priorities. Van Ark said that measures to cope with the crisis should first focus on boosting the European Stability Mechanism and suggested that it should be tripled to 1.5 trillion euros ($1.9 trillion) so that it can adequately protect debt-ridden countries. After that, he said, fiscal integration should follow.

Instead, though, van Ark said, Germany is pushing tougher penalties for countries that go beyond their deficit limits. He likened that strategy to a lifeguard insisting a drowning person learn to swim before he will rescue him, and said, "The timing of what they want to do is wrong."