Moody's Revises Outlook on Germany, the Netherlands and Luxembourg to Negative
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Moody's lowered its outlook on Aaa sovereign ratings of Germany, the Netherlands and Luxembourg to negative from stable. In addition, Moody's has also affirmed Finland's Aaa rating and stable outlook.
Moody's said all four sovereigns are adversely affected by the following two euro-area-wide developments:
1.) The rising uncertainty regarding the outcome of the euro area debt crisis given the current policy framework, and the increased susceptibility to event risk stemming from the increased likelihood of Greece's exit from the euro area, including the broader impact that such an event would have on euro area members, particularly Spain and Italy.
2.) Even if such an event is avoided, there is an increasing likelihood that greater collective support for other euro area sovereigns, most notably Spain and Italy, will be required. Given the greater ability to absorb the costs associated with this support, this burden will likely fall most heavily on more highly rated member states if the euro area is to be preserved in its current form.
These increased risks, in combination with the country-specific considerations discussed below, have prompted the changes in the rating outlooks of Germany, the Netherlands and Luxembourg. In contrast, Finland's unique credit profile, as discussed below, remains consistent with a stable rating outlook.
Commenting on the rational for the changed outlook, Moody's said: "Today's decision to change to negative the outlooks on the Aaa ratings of Germany, the Netherlands and Luxembourg is driven by Moody's view that 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."
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Moody's said all four sovereigns are adversely affected by the following two euro-area-wide developments:
1.) The rising uncertainty regarding the outcome of the euro area debt crisis given the current policy framework, and the increased susceptibility to event risk stemming from the increased likelihood of Greece's exit from the euro area, including the broader impact that such an event would have on euro area members, particularly Spain and Italy.
2.) Even if such an event is avoided, there is an increasing likelihood that greater collective support for other euro area sovereigns, most notably Spain and Italy, will be required. Given the greater ability to absorb the costs associated with this support, this burden will likely fall most heavily on more highly rated member states if the euro area is to be preserved in its current form.
These increased risks, in combination with the country-specific considerations discussed below, have prompted the changes in the rating outlooks of Germany, the Netherlands and Luxembourg. In contrast, Finland's unique credit profile, as discussed below, remains consistent with a stable rating outlook.
Commenting on the rational for the changed outlook, Moody's said: "Today's decision to change to negative the outlooks on the Aaa ratings of Germany, the Netherlands and Luxembourg is driven by Moody's view that 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."
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