Moody’s issues eurozone credit warning
Credit-rating agency says sovereign-debt crisis is putting all eurozone countries at risk.
Moody’s, a credit-rating agency, has warned that the credit ratings of all economies in the eurozone are under threat because of the sovereign-debt crisis.
While France’s triple-A rating has looked in peril for several months, this announcement is the first time that the eurozone’s other top-ranking economies – including Germany, Finland, Austria and the Netherlands – have been put under the microscope.
“The continued rapid escalation of the euro area sovereign and banking credit crisis is threatening the credit standing of all European sovereigns,” Moody’s warned. “In the absence of policy measures that stabilise market conditions over the short term, or those conditions stabilising for any other reason, credit risk will continue to rise.”
The agency blamed political instability in Greece and Italy, uncertainty around the final ‘haircut’ imposed on holders of Greek debt, the emphasis in the conclusions of a eurozone summit of 28 October on “the conditional nature of the existing support programmes”, and “the further worsening of the economic outlook” in the eurozone.
Reports in the Italian press suggest that the International Monetary Fund (IMF) is preparing to grant financial help to Italy as it struggles to pay off its debt.
It is believed that the IMF is considering help worth €600 billion, much more than would be available from the European Financial Stability Facility (EFSF), in return for sweeping austerity measures and structural reform.
According to reports in German media, the six eurozone countries that have a triple-A credit rating (Germany, France, Austria, the Netherlands, Finland and Luxembourg) are working on plans for joint issuance of so-called ‘elite bonds’. These bonds would be issued to raise funds for other eurozone countries in financial difficulties.
The discussions about elite bonds reflect problems affecting the EFSF, which does not have enough funds to assist Spain and Italy if those countries needed financial assistance. The EFSF has around €200bn-€250bn available to help struggling eurozone countries but Spain and Italy would require more than double that amount each.