Euro crisis: Germany downgraded

Moody's lowered its assessment of the German economy today, taking a first step toward a full credit rating downgrade for Europe's largest and most pivotal market.

The agency lowered the outlook for the German economy to "negative" from "stable" - along with a similar move for the Netherlands and Luxembourg -sending a stark warning that no economy is immune from the eurozone crisis.

Moody's said that the three AAA-rated countries faced risks from the increased prospect of Greece leaving the eurozone and from the possible need to bail out Spain and Italy.

"The level of uncertainty about the outlook for the euro area, and the potential impact of plausible scenarios on member states, are no longer consistent with stable outlooks," it said.

The ratings agency pointed to a "reactive and gradualist policy response" by European leaders as one cause for continued concern.

Germany reacted by saying it would continue to play the role of "eurozone's anchor of stability''.

"Germany will do all it can with its partners to overcome the European debt crisis as quickly as possible,'' the finance ministry said in a statement.

The ministry said that it had "taken note of Moody's opinion'' all the while underlining that "the eurozone risks mentioned by the ratings agency are not new.''

"This estimate puts the focus on short-term risks, while stability prospects in the long term are not mentioned.''

"Germany itself is in a solid economic and financial situation,'' it said, noting that the capitalisation of the banking sector has "improved considerably'' and that "growth prospects of the German economy are solid.''

However Moody's warned that even if Greece survived, richer nations would likely shoulder more burdens going forward, including the possibility of bailing out large eurozone members.

"The continued deterioration in Spain and Italy's macroeconomic and funding environment has increased the risk that they will require some kind of external support."

That would send the eurozone crisis to a different level.

"Spain's economy and government bond market is around double the combined size of those of Greece, Portugal and Ireland," Moody's said referring to the three already bailed-out eurozone nations.

Moody's also announced that Finland's AAA rating and outlook were unchanged.


© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on red akl_a1 at 26 Jul 2014 07:09:28 Processing Time: 685ms