EU’s Rating Outlook Cut To ‘Negative’
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Moody’s Investors Service lowered the European Union’s credit rating outlook from ‘stable’ to ‘negative’ on Monday, citing risks in the region’s last remaining Aaa-rated economies – Germany, France, the U.K. and Netherlands – as the reasons behind the cut.
The move follows a similar action in July, when Moody’s had revised the outlooks of Germany and the Netherlands to ‘negative’; while France and the U.K. had already seen their outlooks lowered earlier this year.
Moody’s Investors Service lowered the European Union’s credit rating outlook from ‘stable’ to ‘negative’ on Monday, citing risks in the region’s last remaining Aaa-rated economies – Germany, France, the U.K. and Netherlands – as the reasons behind the cut.
The move follows a similar action in July, when Moody’s had revised the outlooks of Germany and the Netherlands to ‘negative’; while France and the U.K. had already seen their outlooks lowered earlier this year.
[quote]“The creditworthiness of these member states is highly correlated, as they are all exposed, albeit to varying degrees, to the euro area debt crisis,” Moody’s said, adding that the change “reflects the negative outlook on the Aaa ratings of the member states with large contributions to the E.U. budget.”[/quote]Related: Will August Be A Decisive Turning Point For The Eurozone Crisis?: Kemal Dervis
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According to the New York Times, the four countries account for about 45 percent of the EU’s total budget revenue. Should their economic situations worsen, Moody’s argues, they could be forced to prioritise their own debt obligations rather than their commitments to the EU.
“In particular, in the event of a scenario of extreme stress in which Aaa-rated member states would default on their debt obligations:
1) defaults on the loans that back the EU debt would be highly likely,
2) the EU’s cash reserve would likely be stressed, and
3) the EU member states would likely not prioritise their commitment to backstop the EU debt obligations over the service of their own debt obligations,” the ratings agency wrote.
On Monday however, Mario Draghi, the president of the European Central Bank, hinted to officials that he would be comfortable buying three-year government bonds to bring down borrowing costs for nations in financial distress.
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The news brought some cheer to European markets, with the 17-nation euro rising slightly versus most of its major peers – even managing to approach a two-month high against the dollar.
[quote]“If the ECB really does buy bonds with up to a three-year maturity, that would be a positive surprise for the euro,” said Daisuke Karakama, a market economist in Tokyo, to Bloomberg.[/quote]
