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Germany, the Netherlands and Luxembourg had the outlooks for their Aaa credit ratings lowered to negative by Moody's Investors Service, which cited “rising uncertainty" about Europe’s debt crisis.
Risks that Greece may leave the 17-nation euro currency and “increasing likelihood” of collective support for European countries such as Spain and Italy were among reasons for the change, Moody’s said yesterday in a statement.
“Given the greater ability to absorb the costs associated with this support, this burden will likely fall most heavily on more highly rated member states if the euro area is to be preserved in its current form,” Moody’s said.
Europe was plunged into fresh market turmoil yesterday as the first call for bailout aid by a Spanish region sent borrowing costs surging, while Spain and Italy reinstated a ban on betting on stock declines. Government bond yields in the U.S., U.K. and Germany fell to records, while stocks dropped and the euro traded below its lifetime average against the dollar.
With “Germany’s central position in the euro zone, the idea that it could be somehow isolated from the general deterioration of the euro area is not realistic,” said Nicolas Veron, senior fellow at Bruegel, a Brussels-based research organization. “From this standpoint, the downgrade sounds logical.”
Yields on German 10-year bonds were 1.18 percent yesterday, down from 1.83 percent at the end of last year. The Netherland’s securities of the same maturity yield 1.63 percent, while those of Luxembourg yield 1.71 percent.
Ratings Action
Almost half the time, yields on government bonds fall when a rating action by Standard & Poor’s and Moody’s suggests they should climb, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as the 1970s.
After S&P stripped France and the U.S. of AAA grades, interest rates paid by the countries to finance their deficits dropped rather than rose. The U.S. 10-year Treasury yield yesterday fell as low as a record 1.3960 percent. That compares with an average of 3.76 percent over the past 10 years, according to data compiled by Bloomberg.
Greece’s creditors meet this week amid doubts that the country will meet its bailout commitments. German Vice Chancellor Philipp Roesler said he’s “very skeptical” that European leaders will be able to rescue Greece.
France, Austria
By the end of September, Moody’s also will examine the implications of the recent uncertainty on Aaa-rated Austria and France, whose rating outlooks were moved to negative from stable on Feb. 13, according to Moody’s. “Specifically, Moody’s will review whether their current rating outlooks remain appropriate or whether more extensive rating reviews are warranted,” the ratings company said.
German Deputy Foreign Minister Michael Georg Link warned against “talking up” the collapse of the euro and said decisions on Greece’s fate will be made after an economic assessment is made by the “troika” of international monitors.
The crisis has been compounded as Spanish Prime Minister Mariano Rajoy confronts 15 billion euros ($18.2 billion) of debt redemptions in regions in the second half of this year. In addition to Catalonia, the most indebted region, Castilla-La- Mancha, Murcia, the Canary Islands and the Balearic Islands may follow Valencia in seeking aid from Madrid, El Pais newspaper reported.
Spain’s Economy Minister Luis de Guindos will visit Berlin tomorrow for talks with German Finance Minister Wolfgang Schaeuble. No press conference is planned.
Spain Contagion
Italian Prime Minister Mario Monti, his country burdened by rising borrowing costs, said last week that unrest in Spain, where protesters derided the country’s 65 billion-euro austerity package, added to euro concerns.
Euro-area finance ministers gave final approval to a bank bailout for Spain of as much as 100 billion euros on July 20. The decision paved the way for a first payment from Europe’s temporary rescue fund, the European Financial Stability Facility.
Finland’s top ranking retained its stable outlook from Moody’s, which cited the country’s lack of debt on a net basis, its small and domestically oriented banking system and its limited exposure to the euro area in terms of trade.
Germany, Netherlands Rating Outlooks Cut to Negative by Moody
Risks that Greece may leave the 17-nation euro currency and “increasing likelihood” of collective support for European countries such as Spain and Italy were among reasons for the change, Moody’s said yesterday in a statement.
“Given the greater ability to absorb the costs associated with this support, this burden will likely fall most heavily on more highly rated member states if the euro area is to be preserved in its current form,” Moody’s said.
Europe was plunged into fresh market turmoil yesterday as the first call for bailout aid by a Spanish region sent borrowing costs surging, while Spain and Italy reinstated a ban on betting on stock declines. Government bond yields in the U.S., U.K. and Germany fell to records, while stocks dropped and the euro traded below its lifetime average against the dollar.
With “Germany’s central position in the euro zone, the idea that it could be somehow isolated from the general deterioration of the euro area is not realistic,” said Nicolas Veron, senior fellow at Bruegel, a Brussels-based research organization. “From this standpoint, the downgrade sounds logical.”
Yields on German 10-year bonds were 1.18 percent yesterday, down from 1.83 percent at the end of last year. The Netherland’s securities of the same maturity yield 1.63 percent, while those of Luxembourg yield 1.71 percent.
Ratings Action
Almost half the time, yields on government bonds fall when a rating action by Standard & Poor’s and Moody’s suggests they should climb, according to data compiled by Bloomberg on 314 upgrades, downgrades and outlook changes going back as far as the 1970s.
After S&P stripped France and the U.S. of AAA grades, interest rates paid by the countries to finance their deficits dropped rather than rose. The U.S. 10-year Treasury yield yesterday fell as low as a record 1.3960 percent. That compares with an average of 3.76 percent over the past 10 years, according to data compiled by Bloomberg.
Greece’s creditors meet this week amid doubts that the country will meet its bailout commitments. German Vice Chancellor Philipp Roesler said he’s “very skeptical” that European leaders will be able to rescue Greece.
France, Austria
By the end of September, Moody’s also will examine the implications of the recent uncertainty on Aaa-rated Austria and France, whose rating outlooks were moved to negative from stable on Feb. 13, according to Moody’s. “Specifically, Moody’s will review whether their current rating outlooks remain appropriate or whether more extensive rating reviews are warranted,” the ratings company said.
German Deputy Foreign Minister Michael Georg Link warned against “talking up” the collapse of the euro and said decisions on Greece’s fate will be made after an economic assessment is made by the “troika” of international monitors.
The crisis has been compounded as Spanish Prime Minister Mariano Rajoy confronts 15 billion euros ($18.2 billion) of debt redemptions in regions in the second half of this year. In addition to Catalonia, the most indebted region, Castilla-La- Mancha, Murcia, the Canary Islands and the Balearic Islands may follow Valencia in seeking aid from Madrid, El Pais newspaper reported.
Spain’s Economy Minister Luis de Guindos will visit Berlin tomorrow for talks with German Finance Minister Wolfgang Schaeuble. No press conference is planned.
Spain Contagion
Italian Prime Minister Mario Monti, his country burdened by rising borrowing costs, said last week that unrest in Spain, where protesters derided the country’s 65 billion-euro austerity package, added to euro concerns.
Euro-area finance ministers gave final approval to a bank bailout for Spain of as much as 100 billion euros on July 20. The decision paved the way for a first payment from Europe’s temporary rescue fund, the European Financial Stability Facility.
Finland’s top ranking retained its stable outlook from Moody’s, which cited the country’s lack of debt on a net basis, its small and domestically oriented banking system and its limited exposure to the euro area in terms of trade.
Germany, Netherlands Rating Outlooks Cut to Negative by Moody
