The week started with a degraded outlook on the Euro’s triple-A rated economies. Yesterday, the monetary union’s stability facility suffered the same fate.
Moody’s Investors Service on Monday changed its outlook for top-rated Germany, the Netherlands and Luxembourg from stable to negative. The agency warned investors that these nations are likely to increase support for indebted Euro Zone states such as Spain and Italy. That does not even discount the probability of Greece faltering in its bailout commitments and once more opening the possibility for a Euro exit.
The burden of support rests on the Euro Zone’s top-rated states on the increasing likelihood that greater support would be needed by other indebted Euro area countries.
The drama did not stop there. Apparently, Moody’s was still a bit moody, so to speak.
Yesterday, the ratings agency changed the outlook on the provisional (P)Aaa long-term rating of the European Financial Stability Facility to negative from stable. This serves as a blow to a fund that was supposed to backstop struggling members of the single currency union.
Moody’s said the move followed on from its decision a day earlier to change the outlooks for Germany, the Netherlands and Luxembourg to negative. All three are guarantors for the EFSF, with Germany holding the largest share at just over 29 percent.
“The change in the outlook of the EFSF reflects the now negative rating outlooks on all but one of its Aaa guarantors – namely Finland,” Moody’s said in a statement.
The EFSF was set up in 2010 with a mandate to safeguard financial stability in Europe by providing financial assistance to member states. Backed by guarantee commitments for a total of 780 Billion Euros and has a lending capacity of 440 Billion Euros, it is rated Aaa by Moody’s and Fitch Ratings, though Standard & Poor’s has rated it at AA+.
Moody’s said risks that could lead to a downgrade of the EFSF’s rating would include a deterioration in the creditworthiness of Euro area member states, particularly Germany, France and the Netherlands. What with France losing its top rating earlier in the year, and with the outlook for Germany and the Netherlands turning negative, the EFSF has suffered the same fate.
Article by AlgosysFx Forex Trading Solutions