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Europe
Berlin bristles over weak Moody's outlook
Europe's biggest economy maintains that its finances remain solid, despite "negative" outlook from ratings agency.
Last Modified: 24 Jul 2012 12:37
German DAX briefly turned negative following the lowered credit rating [Reuters]

The German government has downplayed the decision of ratings agency Moody's to place Europe's biggest economy on a negative outlook.

Moody's took the first step toward stripping Germany of its coveted AAA credit rating on Monday, cutting the outlook for Europe's largest and most pivotal economy to "negative".

Delivering a stark warning that no one is immune from the eurozone's rolling crisis, the ratings agency lowered Germany's credit outlook from "stable" to "negative".

A similar move was announced for fellow AAA ranked economies, The Netherlands and Luxembourg.

Moody's said all three faced risks from Greece leaving the eurozone and from the need to stump up cash for potential bailouts for Spain and Italy.

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In Germany, the finance ministry immediately shot back by saying the country remained the "eurozone's anchor of stability."

Germany's finance ministry noted in a statement late Monday that Moody's Investors Service had kept Germany's AAA rating, the highest possible, for the time being.

The government said the risks cited by Moody's weren't new and were largely based on a short-term assessment.

It said Germany "remains in a very solid economic and financial situation".

"The eurozone has initiated a series of measures which should lead to the durable stabilising of the zone," the ministry said.

Moody's rationale for the downgrade appeared to hinge on a likely deepening of the crisis, which appeared to be reaching a fresh denouement Monday as Spanish borrowing costs soared and Greek reforms were on the rocks.

"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," Moody's said.

Great burdens

Even if Greece survives, the agency warned that richer nations would likely shoulder greater burdens in future.

"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," said the credit agency.

That would send the eurozone crisis to a different level, it said.

"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.

While Berlin has, until now, been largely unscathed by the crisis, borrowing at below zero percent interest, it has been at the very centre of Europe's political storm.

The government of Chancellor Angela Merkel has repeatedly been frequently criticised for its austerity-first approach and for not getting ahead of the crisis.

Moody's reiterated those concerns, pointing to a "reactive and gradualist policy response" by European leaders as cause of concern.

Germany, which is reluctant to have its taxpayers on the hook for profligate spending in southern Europe said it would "do all it can with its partners to overcome the European debt crisis as quickly as possible".

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

On Tuesday, Wolfgang Schaeuble, the German finance minister, will hold talks with Spanish Economy |Minister in Berlin.

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Source:
Agencies
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