From stable to negative. Moody’s new rating for Europe puts the continent on notice and made some European stock markets slip on Tuesday. According to the agency, Germany, France, the UK and the Netherlands could stop fulfilling their obligations to the EU if the crisis worsens. These four countries account for about 45% of the EU’s budget revenue.
“The creditworthiness of these member states is highly correlated, as they are all exposed, albeit to varying degrees, to the euro area debt crisis,” Moody’s stated.
Analysts were not surprised. Many EU countries have either seen their outlook cut, or their rating lowered, in the last months.
“Moody’s decision brings it into line to reflect the negative outlooks to the main contributors to the EU budget, namely, Germany, France, UK and the Netherlands who are also on negative outlook with the same agency. Nevertheless it highlights the concerns about the debt sustainability and growth prospects of the main EU contributor nations,” says Michael Hewson of CMC Markets.
The move comes ahead of a highly anticipated European Central Bank montly meeting on Thursday, when we could find out the full details of Draghi’s plan. Apparently Draghi told MEPs in a closed session leaked on Monday night that it would be quite legal for the ECB to buy short term sovereign bonds. Spanish and Italian short-term government bonds were rallying on Tuesday morning. We’ll keep you posted…