All of EU 'in danger of credit rating downgrade'
Further defaults could lead to eurozone breaking up -- Moody's
Published 29/11/2011 | 05:00
All European governments are in danger of having their credit ratings slashed due to the eurozone debt crisis, the influential agency Moody's has warned.
Several countries could end up having their ratings cut to so-called 'junk' status -- a highly risky rating usually only given to heavily indebted companies.
Moody's said the credit standing of all European governments was under threat, adding that while it believed the eurozone would remain intact, countries could still lose their prized credit ratings.
For instance, France remains an AAA-rated country, although many in the markets believe it will soon lose this status.
Moody's also noted the political impetus to come up with lasting solutions may only happen after a series of shocks, which may lead to more countries losing access to the markets and requiring a bailout.
"This would very likely cause those countries' ratings to be moved into speculative grade in view of the solvency tests that would likely be required and the burden-sharing that might be imposed if (as is likely) support were to be needed for a sustained period," the agency said in a report.
Economist Tim Condon, head of research for Asia at ING, said the Moody's statement was unlikely to surprise markets.
"It's basically common knowledge that everything in Europe is at risk," he said. "Quite a few people are contemplating a eurozone breakup scenario."
Financial markets have put Italy, Spain and now France under increasing pressure on scepticism of the ability of European leaders to resolve the debt crisis that has already sparked financial bailouts for Greece, Portugal and Ireland.
Italian Prime Minister Mario Monti aims to shore up the country's strained public finances this week by unveiling measures that could include a revamped housing tax.
Contacts between the IMF and Rome have intensified as concern has grown about a financial backstop for Italy.
Eurozone finance ministers will today consider detailed operation rules for the area's bailout fund. Approval will clear the way for the €440bn fund to attract further resources.
Moody's said the euro area was approaching a junction, leading to either closer integration or greater fragmentation.
"In Moody's view, the longer the liquidity crisis continues, the more rapidly the probability of defaults will continue to rise," it said.
Such defaults would increase the chances that one or more members of the bloc would leave the euro area.
"Moody's believes that any multiple-exit scenario -- in other words, a fragmentation of the euro -- would have negative repercussions for the credit standing of all euro-area and EU sovereigns." (Reuters)