• Germany's news in English

Moody's cuts Germany's outlook to 'negative'

The Local · 24 Jul 2012, 12:22

Published: 24 Jul 2012 06:59 GMT+02:00
Updated: 24 Jul 2012 12:22 GMT+02:00

Facebook Twitter Google+ reddit

The shock decision to slash the outlook of Germany, Europe's top economy and paymaster, from "stable" to "negative" came as auditors arrived in debt-wracked Greece and Spain's top finance official headed to Berlin for talks.

The news pushed Spain's borrowing costs above 7.5 percent – well above the seven-percent mark that forced others into bailouts – but European stocks rebounded slightly as positive Chinese data offset the Moody's bombshell.

Moody's said its decision was based on "rising uncertainty regarding the outcome of the euro area debt crisis (and the) ... increased likelihood of Greece's exit from the euro area."

Even if Greece manages to stay in the 17-member bloc, Moody's said there was "an increasing likelihood that greater collective support for other euro area sovereigns, most notably Spain and Italy, will be required."

Germany's top rating could be cut, Moody's said, if Berlin needed to shore up its banks as a result of the crisis, if the bloc were to split or Germany were to see its own borrowing costs – currently at record lows – rise.

Policymakers raced to dismiss the action.

The head of the Eurogroup of eurozone finance ministers, Jean-Claude Juncker, immediately stressed a "strong commitment" to the bloc's stability after the warning, which also hit the Netherlands and his native Luxembourg.

Moody's latest decision "confirms the very strong rating enjoyed by a number of euro area member states, as supported by the sound fundamentals which these (three) and other euro area countries continue to enjoy," said Juncker.

Germany's finance ministry was even more dismissive, saying in a statement issued late Monday: "The eurozone risks that Moody's mentions are not new.

"Moody's assessment is derived mainly from short-term risks, while the longer-term outlook for stabilisation goes unmentioned ... The very sound state of Germany's own economy and public finances remains unchanged," it said.

Berlin would maintain its "safe haven status" and continue to act as a "stability anchor in the euro area," the finance ministry vowed.

But in another sign that Germany's resistance to the eurozone turbulence was fading, a key business confidence index slipped to a three-year low, prompting analysts to warn the German economy could deliver below-trend growth.

In Athens, auditors from the International Monetary Fund, European Central Bank were arriving to review Greek progress towards securing a further slice of bailout cash before the country goes bankrupt.

Officials in Germany have insisted they will wait for this report, due in early September, before casting judgement on Greece's ability to stay in the eurozone as voices in Berlin calling for their exit grow louder.

Meanwhile, political efforts to contain the crisis were set to intensify, with Spanish Economy Minister Luis de Guindos due in Berlin for talks with German Finance Minister Wolfgang Schäuble.

Berlin has insisted it is a "regular meeting" but spokeswoman Marianne Kothe acknowledged on Monday: "They will of course discuss the current situation in Spain" amid speculation Madrid will soon be forced into a full-blown bailout.

The meeting takes place behind closed doors and no news conference was expected following the meeting.

Story continues below…

De Guindos insisted Monday that there was no possibility of a sovereign bailout after Spain clinched a rescue package last week of up to €100 billion for its stricken banks.

But Spain's troubles showed little sign of abating Tuesday as it paid higher rates to borrow for three and six months, although demand was stronger than at a previous such auction.

While markets broadly took the Moody's action in their stride, some analysts saw implications for Chancellor Angela Merkel's crisis-fighting strategy.

"Opposition to additional commitments for rescue measures is likely to strengthen," said Christian Schulz from Berenberg Bank, noting Merkel has had to rely on opposition support in parliament to push through key measures.

"Even more German reluctance to help will further erode the confidence of investors and savers in southern Europe," Schulz warned.


The Local (news@thelocal.de)

Facebook Twitter Google+ reddit

Your comments about this article

09:24 July 24, 2012 by smart2012
Well done merkel!!! And now let's roll :)
09:35 July 24, 2012 by Tharwat
Moody¦#39;s is not a Credible, or trust worthy institutions ­ and has always shown weakness in future financial predictions.

This politically driven vehicle is falsely celebrated as a credit rating institute that could hardly warn the start of the financial crises and the fall of the tycoons.

Now that the stringent actions of the German government towards other countries are not favored by the United States we are bombarded by their silliest financial tool, the moody Moody¦#39;s; That will not prevail.
10:39 July 24, 2012 by mos101392

Now Germany like Spain, Italy, and Greece will now have to increase the interest they pay on their bonds instead of paying pennies.
10:59 July 24, 2012 by Anth2305
Sounds like a cue for the old Noel Coward song.. 'Bad times are just around the corner'.
16:33 July 24, 2012 by Beachrider
Moody shouldn't be moved by public perception. If they did, they would lose credibility. It is always nasty when they deliver bad news, though.

They were really taken to task for being late on the 2008 capital collapse, so they will be more cautious now.

I don't know why Germans expected their credit rating to not-be-affected (like this) by the Euro-crisis. Germany's insular approach cannot complete cover its exposure to THAT.
16:35 July 24, 2012 by cheeba
Of course this was inevitable.Germanys status as a safe haven could not be unaffected by it offering guarantees for huge amounts of debt of less credit worthy borrowers, not to mention sharing a currency with them. With the ECB buying sovereign bonds of the PIIG's like a drunken sailor, the markets must question if it is being subjected to political interference, are those bonds really sound investments?
20:28 July 24, 2012 by McM
Moody's only reflect data acquired from the financial markets and related activity.

They are a bit like a thermometer , a reading instrument. If you don't like the heat stay out of the kitchen. But don't get upset with the reading ,use it along with other such financial instruments to make informed decisions about your funds and their relative activity in the market.
22:50 July 24, 2012 by Anth2305
Some financial guru on one of the news channels this evening was saying that they are reckoning on about a 100 billion Euro bailout package, although he predicted that eventually it will turn out to be closer to 500 billion Euros and that there simply won't be anywhere near enough money in the kitty to fund it and that things should start to get really interesting from then on.
Today's headlines
Germans think they're fit, but they're really couch potatoes
Photo: DPA.

There's been an increase in the number of Germans who define themselves as "fit", but their lifestyle choices don't quite match this self-perception.

10 fascinating facts you never knew about German beer
Tennis coach Boris Becker and his wife Lilly at Oktoberfest 2016 in Munich. Photo: DPA

From malt and monks to Radlers and rivalries, the story of German beer is as rich and wonderful as its selection.

Intensive farming 'endangers a third of German species'
Photo: DPA

There are 32,000 species of animal, plant and mushroom life native to Germany. Due to intensive farming methods, one in every three of these is endangered, a new report shows.

German hospital uses therapy to 'treat' paedophiles
A poster from the campaigne "Don't offend", which offers therapy to paedophiles. The sign reads "Do you love kids more than you'd prefer? There's help." Photo: DB Scholz & Friends / DPA.

A unique German initiative is offering therapy to paedophiles to control their urges, with the aim of getting them help before they offend.

Minister: 'no tolerance' for clowns after chainsaw attack
Photo: DPA

Interior Minister Thomas de Maizière has called for a zero-tolerance approach to 'killer clowns' after a series of attacks culminating in two teenagers being chased by a clown wielding a chainsaw.

Baby who was auctioned on eBay taken away from father
Photo: DPA.

A German court ruled on Thursday that a man who put his one-month-old baby up for sale on the online auction platform eBay should only be allowed contact with the child under supervision.

Portugal's ruling party calls German minister 'pyromaniac'
Finance Minister Wolfgang Schäuble. Photo: DPA.

The head of Portugal's ruling Socialists called German Finance Minister Wolfgang Schäuble a "pyromaniac" on Thursday after he criticized Lisbon for reversing course on austerity.

These are Germany's top ten universities
The new library of Freiburg University. Photo: Jörgens.mi / Wikimedia Commons

These are the best universities in all of Germany - at least according to one ranking.

Introducing Swabians - 'the Scots of Germany'
Photo: DPA

These Southern Germans have quite a reputation in the rest of the country.

Woman sues dentist over job rejection for headscarf
Photo: DPA

A dentist in Stuttgart is being taken to court by a woman whom he rejected for a job as his assistant on the basis that she wears a Muslim headscarf.

10 German clichés that foreigners get very wrong
Sponsored Article
Last chance to vote absentee in the US elections
10 ways German completely messes up your English
Germany's 10 most weird and wonderful landmarks
10 things you never knew about socialist East Germany
How Germans fell in love with America's favourite squash
How I ditched London for Berlin and became a published author
12 clever German idioms that'll make you sound like a pro
23 fascinating facts you never knew about Berlin
9 unmissable events to check out in Germany this October
10 things you never knew about German reunification
10 things you're sure to notice after an Oktoberfest visit
Germany's 10 most Instagram-able places
15 pics that prove Germany is absolutely enchanting in autumn
10 German films you have to watch before you die
6 things about Munich that’ll stay with you forever
10 pieces of German slang you'll never learn in class
Ouch! Naked swimmer hospitalized after angler hooks his penis
Six reasons why Berlin is now known as 'the failed city'
15 tell-tale signs you’ll never quite master German
7 American habits that make Germans very, very uncomfortable
Story of a fugitive cow who outwitted police for weeks before capture
jobs available
Toytown Germany
Germany's English-speaking crowd