Moody's hits eurozone fund
July 25, 2012
Moody's announced overnight that it was lowering the economic outlook for funds within the European Financial Stability Facility (EFSF) from "stable" to "negative," a day after taking the same step with Germany, Luxembourg and the Netherlands. As with the three eurozone members, Moody's did not alter the EFSF's top-notch Aaa credit rating.
The EFSF is the current iteration of the overarching eurozone emergency loans fund, sometimes called a "bailout" fund.
The ratings agency said that the EFSF outlook change was linked to its Monday moves, because the poorer prospects for top eurozone economies "imply an increased likelihood that the EFSF might be downgraded over the next 12 to 18 months."
As the eurozone's largest economy, Germany is the largest contributor to the EFSF.
"Risks that would negatively affect the creditworthiness of the EFSF program, leading to a downgrade of EFSF's rating, would include a deterioration in the creditworthiness of the participating euro area member states," Moody's Investors Service said in its statement.
The agency also said that the EFSF outlook could return to stable if "Aaa countries with large EFSF contribution keys, i.e. Germany, France and the Netherlands" were to return to stable economic outlooks in the coming months.
German states also in credit crosshairs
A day after decreeing that German economic prospects were faltering, Moody's turned its attention to individual states within the country. This was effectively an automatic "next step," owing to the interdependence between the state and federal governments in Germany.
North Rhine-Westphalia, Berlin, Brandenburg, Saxony-Anhalt and the southern economic engines of Bavaria and Baden-Württemberg were all demoted from a "stable" to a "negative" economic outlook on Tuesday.
The German Finance Ministry had immediately and explicitly questioned the logic behind Moody's Monday downgrade of the national outlook. In a swift, late-night statement, Berlin said the ratings agency had focused too heavily on short-term eurozone risks and overlooked longer-term attempts to stabilize the so-called "debt crisis."
Germany has been one of the more vocal governments questioning the influence that the three major credit ratings agencies exert over financial markets and investment. Moody's, Standard and Poor's and Fitch are all US-based entities. EU politicians have mooted the establishment of a rival European agency.
msh/ccp (AFP, dpa, Reuters)