Moody's Investors Service said yesterday (12 December) it intends to review the ratings of all 27 members of the European Union in the first quarter of 2012 after EU leaders offered "few new measures" to resolve the crisis in a summit last week.
Fitch Ratings said the summit, in which leaders agreed to draft a new treaty for deeper economic integration, failed to provide a "comprehensive" solution to the crisis, thus increasing short-term pressure on eurozone sovereign ratings.
Friday's agreement in Brussels between 26 European Union leaders to draft a new treaty for deeper integration in the eurozone gave a brief fillip to markets. But it did not last long as the announcements from both Moody's and Fitch compounded the selling in the fragile and increasingly illiquid pre-holiday market environment.
Standard & Poor's warned before the 8-9 December summit that it might downgrade 15 eurozone countries but has yet to announce any decisions.
Clock ticking on possible downgrades
By placing these countries on credit watch negative - which signals a possible imminent downgrade - S&P said "systemic stresses" were building up as credit conditions tightened in the 17-nation region.
On Monday, S&P chief economist Jean-Michel Six said time was running out for the currency bloc to resolve its debt problems.
"There is probably yet another shock required before everybody in the eurozone reads from the same page, for instance a major German bank experiencing some real difficulties on the markets, which is a genuine possibility in the near term," Six told a business conference in Tel Aviv.
The agency, which in August stripped the United States of its AAA rating, said it would focus its decision on political dynamics that "appear to be limiting the effectiveness of efforts to resolve the market confidence crisis."
The assessment of the EU summit's success by rival ratings agencies does not bode well for S&P's upcoming decision.
Moody's said the outcome of the EU summit did not change its view that risks to the cohesion of the euro area continue to rise.
"As we announced in November, unless credit market conditions stabilise in the near future, our ratings of all EU sovereigns will need to be revisited," it said in a weekly report. "We continue to expect to complete such a repositioning during the first quarter of 2012."
Fitch also said the summit did little to ease the pressure on eurozone sovereign debt, as leaders agreed on a gradualist approach that "imposes additional economic and financial costs compared with an immediate comprehensive solution."
"It means the crisis will continue at varying levels of intensity throughout 2012 and probably beyond, until the region is able to sustain a broad economic recovery," Fitch said.
The firm reiterated its belief that the European Central Bank (ECB) is the only "truly credible 'firewall' against liquidity and even solvency crises in Europe."
That firewall is created by either the use of the ECB's existing sovereign bond purchase programme or indirectly by allowing the European Financial Stability Facility (EFSF), or its successor the European Stability Mechanism (ESM), access to its balance sheet, Fitch said in its statement.
Either method would mimic the US Federal Reserve's actions to expand its balance sheet to ensure adequate ability to borrow and lend - that is, liquidity - in the banking system.
EU leaders agreed to lend up to €200 billion to the International Monetary Fund to help it aid eurozone strugglers and to bring forward the transition of the EFSF into the ESM as the permanent rescue fund by mid-2012 instead of 2013.
"Hopes that the ECB would step up its actions in support of its sovereign shareholders as a quid pro quo for institutional and legal changes that gave the ECB greater confidence in the long-run commitment of eurozone governments to fiscal discipline appear to have been misplaced," Fitch said.
COMMENTS
One wonders where the American credit rating agencies (CRAs) found their new minted probity? What is it that has suddenly caused them to adopt a seemingly rigourous approach towards government Euro bonds that was so lacking in the case of credit default options (CDOs) (90% AAA rated don’cha know). PWR has an answer to this: they were bribed by large financial institutions to triple AAA rate CDOs etc even though the underlying assets were worthless. This then raises the question: what is to say that the fundamentally corrupt CRAs (Moody’s, Standard & Poor, Fitch) do not swing the other way – perhaps with some prompting from financial organisations that would have something to gain by seeing the Euro go under.
J’accuse (apologies Victor) - Moody’s, Standard & Poor & Fitch of being corrupt liars who bend with whatever financial wind is blowing.
They undoubtedly collude thus giving good grounds for dawn raids by DG Competition. If member states had any balls (or we lived in a normal society), the crooks and scum working in the CRAs would be sitting behind bars.
Those that feel this is intemperate language should reflect that it is you, Euro tax payers who will pay the elevated interest on Euro government bonds – said interest rates being set (effectively) by the CRA crooks, liars and thieves.
for replica lv purse lv replica purses and check coupon code available replica lv purse to your friends
EurActiv reserves its right to remove comments regarded as offensive, racist, or homophobic as well as hate-speech in general. Spamming or posts with an obvious commercial character will be removed as well. Thank you for your understanding.