Moody’s Cuts German Outlook From Stable to Negative
Moody’s Investor Service on Monday cut its outlook on Germany’s creditworthiness from “stable” to “negative,” while still confirming the country’s triple-A rating, although the move might be a part of the conditioning process down the road towards a Germany credit downgrade. In addition, Moody’s cut its outlook for the Netherlands and Luxembourg, which have triple-A ratings as well, from stable to negative. Finland saw its stable outlook preserved.
The writers at publications like Financial Times are providing the pointless analysis for their readership, as Komal Sri-Kumar writes “Clearly, the dominant role played by the ECB, various governments and international agencies since 2009 has neither ended the debt crisis nor promoted economic growth. It is time to try alternative measures. The way out of the stalemate would be for governments to do less themselves and allow a greater role for market forces.”
The Economist remembers their Economics 101, referencing here the law of diminishing returns: “But while they resist the policies that could make a real difference in solving the problem–real sovereign risk-sharing, real euro-zone-wide bank guarantees backed by the ECB, and higher inflation in Germany–each new intervention will buy a bit less time. And the capital flight from the periphery will continue and peripheral recessions will deepen,” says the Economist.
The ratings agency said the move is arisen from increasing uncertainty caused by the debt crisis. The agency also said there was a growing chance that Greece could leave the euro zone, which “would set off a chain of financial sector shocks…that policymakers could only contain at a very high cost.”
The rating’s agency also said that Germany and other AAA countries could be called upon to increase support for ailing countries like Spain and Italy. The top-rated states would be required to contribute the most support.
Moody’s assured that it would also be considering the euro zone developments effect on Austria and France, both of which are still rated AAA, although their outlooks were cut to negative in February. By the end of the third quarter, Moody’s expects to “review whether their current ratings outlooks remain appropriate or whether more extensive rating reviews are warranted.”
France and Austria lost their triple-A ratings from Standard & Poor’s, another American ratings agency, in January.
‘Germany Is in Very Solid Economic and Financial Situation’
The German Finance Ministry brushed aside Moody’s analysis, saying on Monday night that Germany will continue to anchor the euro zone ship. It posited that Moody’s was focusing on short-term risks. “By means of its solid economic and financial policy, Germany will retain its ‘safe haven’ status and continue to play its role as the anchor in the euro zone responsibly.” It added: “Germany continues to find itself in a very solid economic and financial situation.”
Financial markets fell sharply on Monday on fears that the crisis was escalating again with reports that the International Monetary Fund and Germany as well as other top creditors were not prepared to extend fresh aidto Greece beyond the €130 billion ($158 billion) rescue package agreed earlier this year.The German economics minister, Philipp Rösler, added to uncertainty on Sunday by saying he was skeptical that Greece’s reform efforts would succeed.
The German DAX share index fell by as much as 3.5 percent on Monday and closed down 3.2 percent.
cro — with wire reports