Moody's cuts major EU states’ outlook to negative
04 Sep 2012
Moody's Investor Services has cut the EU's rating outlook to negative reflecting the risks to Germany, France, UK and the Netherlands, which among them account for 45 per cent of the group's budget revenue.
The ratings company lowered the outlook on the EU's Aaa long-term bond rating from stable, according to a statement released in Frankfurt late yesterday and also changed from stable to negative its outlook on the provisional Aaa rating for the EU's medium-term note programme.
According to Moody's, the change reflected the negative outlook on the Aaa ratings of the member states with large contributions to the EU budget. The creditworthiness of these member states was highly correlated, as they were all exposed, albeit to varying degrees, to the euro-area debt crisis, it added.
Ratings of European nations dropped with the sovereign debt crisis with Spain, which held top Aaa rating from Moody's between 2001 and 2010 falling to near junk at Baa3.
The same stresses had hit creditworthiness of EU member states that still enjoyed top ratings thanks to their stronger economies or, as in the case of the UK, being outside the euro region.
According to the rating agency, risks of a downgrade to the EU's sovereign debt rating come from a ''deterioration in the creditworthiness of EU member states. ''Additionally, a weakening of the commitment of the member states to the EU and changes to the EU's fiscal framework that led to less conservative budget management would be credit negative,'' it added.
Meanwhile, German chancellor Angela Merkel told a crowd of beer drinkers in Bavaria yesterday that Germany needed to show solidarity with Europe, and indicated she would support a more active crisis-fighting role at the European Central Bank. Germany makes the largest contribution to the cost of bailing out weaker governments.
