Europe’s paymaster and the region’s largest economy, Germany, is at risk of losing its stellar AAA credit rating as Moody’s reiterates its warning that no country is safe from the crisis that has already brought Greece, Ireland, Portugal and Spain to its knees.
Credit ratings agency Moody’s has put Germany’s AAA rating on negative watch, a sign that eurozone’s largest economy could soon be downgraded.
Citing the increased likelihood of a Greek euro exit, as well as mounting fears of another Spanish bailout, Moody’s said the downgrade could happen if it were to “observe a prolonged deterioration in the government’s fiscal position and/or the economy’s long-term strength that would take debt metrics outside scores that are commensurate with a AAA rating.”
According to Moody’s, while it expects a strong policy response from the euro area in the event of a Greek exit, “it would still will set off a chain of financial-sector shocks” that would come at a “very high cost”.
In the alternate scenario that an exit is avoided, Moody’s said the cost of supporting sovereign debts would increase and inevitably “fall most heavily on more highly rated member states if the euro is to be preserved in its current form.”
Similarly, the Netherlands and Luxembourg also had their credit outlooks placed on negative watch.
Moody's said it would also weigh the euro zone developments' impact on AAA-rated Austria and France. Those countries' outlooks were lowered to negative in February, and Moody's now expects, by the end of the third quarter, to "review whether their current rating outlooks remain appropriate or whether more extensive rating reviews are warranted."
The German finance ministry said it had "taken note of Moody's opinion," arguing that the ratings agency had put the focus "on short-term risks, while stability prospects in the long term are not mentioned.
"The eurozone has initiated a series of measures which should lead to the durable stabilising of the zone," the ministry added.
Germany has so far proved to be resilient to the crisis, although it is showing early signs of an economic slowdown.
Jean-Claude Juncker, head of the eurozone finance ministers group, on Tuesday stated his "strong commitment" to stability.
Germany, The Netherlands and Luxembourg have "sound fundamentals," Juncker said, adding:
Against this background, we reiterate our strong commitment to ensure the stability of the euro area as a whole.Courtesy Economy Watch, (EconMatters author archive here)
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.
© EconMatters All Rights Reserved | Facebook | Twitter | Post Alert | Kindle