Moody’s changed the top “AAA” outlook ratings for Germany, Netherlands and Luxembourg from “stable” to “negative” because of the state debt crisis in the euro area, according to Bloomberg. Finland remains the only state in the euro area with a “stable” outlook associated to the maximum rating. Germany, Netherlands, Luxembourg and Finland remained the only countries in monetary union whose triple-A ratings have not been downgraded by the three major rating agencies, Standard & Poor’s, Moody’s and Fitch.
Some of the reasons stated by Moody’s today include the risk that Greece could leave the euro area and the growing possibility that eurozone states would have to financially support countries with large economies such as Spain and Italy. “Taking into account the higher capacity to absorb the costs associated with this support, the burden returns to the greatest extent to member states with the highest ratings, in order to preserve the euro area in its current form”, says Moody’s in a statement, referring to Germany, Netherlands and Luxembourg.
European markets showed a new round of turmoil Monday after the first regional government in Spain has requested financial assistance from central government and Madrid and Rome have reintroduced the ban on “short selling” – transactions with shares by speculators that are betting on falling market prices. Spain’s finance costs reached new records, because of fears that the aid granted by the central government to regional authorities will put pressure on the deficit and debt of the country.
Asian stock exchanges are down 0.3% Tuesday morning after losing 2.1% Monday, while the average yield of Australian government bonds maturing in 15 years reached on the secondary market the minimum of 15 years, as the investors are looking for assets perceived as safe. Euro reached last month a minimum of 11 years against the Japanese yen and traded at the lowest level in over two years against the dollar. Investors try to place money in safe assets, the most popular are top-rated government bonds outside the euro area, such as those of Australia and Canada, according to UBS analysts.
Financing costs in Germany with a maturity of 10 years were Monday at 1.18% from 1.83% at the beginning of the year and Dutch bonds with similar maturity offer a yield of 1.63%. Luxembourg borrows for 10 years at 1.71%. Officials from IMF, European Commission and European Central Bank were in Greece in Greece to assess external financing of €130 billion, agreed earlier this year to extend the €110 billion program started in 2010. German Economy Minister Philipp Roesler has recently said that he was “very skeptical” that eurozone governments will be able to save Greece from bankruptcy, as its possible exit from the monetary union is back to the attention of markets.
A German foreign ministry official warned that it should not be talking about the collapse of the euro area and Greece related decisions will be made only after completion of economic evaluation by international lenders mission. In Spain, Prime Minister Mariano Rajoy prepares for payment or refinancing of a debt of €15 billion in the second half of this year, and local media claims that many regional governments are preparing to seek financial assistance from central government. Spanish Minister of Economy, Luis de Guindos, will visit Berlin for talks with German Finance Minister Wolfgang Schaeuble. Spanish Prime Minister Mario Monti said last week that the pressures in the euro area are exacerbated by social tensions in Spain, where there are protests against austerity.
Eurozone finance ministers gave the final approval last Friday for a financing line of 100 €billion for recapitalization of banks in Spain. Finland retains its top rating with stable outlook due to lower net government debt, restricted bank system, oriented to the local economy and limited exposure to the euro area in terms of trade, according to Moody’s.
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