Moody’s on Monday downgraded the debt ratings of Italy, Spain and Portugal and placed negative outlooks on France, Britain and Austria, blaming the ongoing fallout from the eurozone crisis.
Ratings were also cut for Slovenia, Slovakia and Malta, with Moody’s saying all nine countries were increasingly susceptible to financial and macroeconomic risks from the euro area crisis.
Moody’s said that Europe’s weakening economic prospects “threaten the implementation of domestic austerity programs and the structural reforms that are needed to promote competitiveness.”
The agency questioned the implementation of institutional reform in the euro area and whether adequate resources will be pulled together to deal with the crisis.
Moody’s said those factors will keep market confidence fragile “with a high potential for further shocks to funding conditions for stressed sovereigns and banks.”
“To a varying degree, these factors are constraining the creditworthiness of all European sovereigns and exacerbating the susceptibility of a number of sovereigns to particular financial and macroeconomic exposures.”
The downgrades came a day after Greece and Europe appeared to pass a major hurdle when the Greek parliament agreed to a tough austerity package despite rioting in the streets of Athens and other cities.
That appeared to open the way for a comprehensive debt restructuring and second massive bailout of the country, avoiding a default that could have sparked more turmoil in the eurozone.
In the ratings, Italy was cut one notch to A3 from A2; Spain two notches to A3 from A1, and Portugal one step to Ba3 from Ba2.
Slovakia and Slovenia both went down one step to A2, while Malta moved one step to A3.
Austria, France and Britain all remained with the top AAA rating but were put on negative outlooks, a warning that if conditions worsen they could be hit with full downgrades.
“The negative outlooks reflect the presence of a number of specific credit pressures that would exacerbate the susceptibility of these sovereigns’ balance sheets, and of their ongoing austerity programs, to any further deterioration in European economic conditions and financial landscape,” it said.
Moody’s said it had limited the magnitude of the rating cuts due to the “European authorities’ commitment to preserving the monetary union and implementing whatever reforms are needed to restore market confidence.”
It cited the agreement by EU leaders on a framework for disciplined fiscal planning as well as the measures already adopted to lower the risk of contagion in the region emanating from the most troubled countries. (AFP)
