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Moody's lowers German outlook

July 24, 2012

The credit ratings agency Moody's has downgraded the economic outlook for Germany, the Netherlands and Luxembourg to "negative" from "stable." All three countries retain their top-notch credit ratings though.


Moody's Investors Service voiced its first doubts on Germany's financial future late on Monday, downgrading the German economic outlook from "stable" to "negative" and attributing the move to the eurozone's debt-related difficulties.

"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 in a statement, also downgrading the economic outlooks for the Netherlands and Luxembourg. "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."

All three countries retained their top-notch AAA credit rating, despite the warning. Fellow eurozone star student Finland survived the evaluation with its "stable" economic outlook left unscathed.

Finance Ministry suggests short-sightedness

The Finance Ministry issued an immediate late-night response in Berlin, saying that Germany remained a stabilizing influence in the eurozone.

Reporting that it had "taken note of Moody's opinion," the finance ministry said that the credit agency had focused too heavily on the short-term risks, "while the long-term prospects for stability went unmentioned."

"The eurozone has begun the path towards a whole string of reforms, which will lead to an enduring stabilization of the eurozone. Germany itself is in an unchanged and very solid financial and economic situation," the ministry statement said.

The German response to Moody's also pointed to the record-low interest rates - sometimes even negative interest rates - that investors were prepared to accept when purchasing German sovereign bonds, saying this was a sign of the confidence in the domestic economy.

The ministry pledged to stick to solid economic and fiscal policies to ensure that Germany would continue to "responsibly carry out its role as an anchor within the eurozone."

Moody's economic outlook has no direct bearing on an organization or country's credit rating, but a negative outlook is used to suggest that the rating might come under scrutiny in future evaluations.

msh/ccp (AFP, AP, dpa, Reuters)

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