Moody’s Investment Services has taken heat over not acting quickly enough of ratings changes from a host of commentators, including Z-Score creator/Credit Congress speaker Ed Altman, PhD, as recently as this Spring (Eg: Spain maintaining a Aaa rating through early June). However, the ratings agency took the lead in putting two of the strongest nations in a struggling European Union on its version of a watch list.
Usually, it’s actual downgrades to sovereign credit ratings that make news where the so-called “Big Three” ratings agencies are concerned, but Tuesday brought headlines to Moody’s simply for its decision to move both economic titan Germany as well as the Netherlands from a stable outlook to a negative one. Granted, neither of the duo nor Luxembourg, which received the same reclassification this week by Moody’s, are being faulted themselves for the growing concerns. Moody’s biggest concerns centered on “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.”
“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,” Moody’s noted in its statement. “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.”
Despite the warning, all three remain at the “Aaa” level with Moody’s.
-Brian Shappell, CBA, NACM staff writer