Tuesday, July 24, 2012

German economy received ‘Negative Outlook’ from Moody’s

Germany’s AAA credit rating could be reduced in the future.

The once strong economy of Germany, that has held the coveted AAA rating for several years, is now facing a negative outlook from Moody’s. In other words, the current rating will be reviewed and can be reduced in the near future.

As the Eurozone crisis lingers on, the most powerful European economies are about to face some real effects of the worsening debt crisis. Besides Germany, the ratings of Netherlands and Luxembourg, two of the continent’s highest rated economies, were also given a negative outlook by Moody’s.

The ratings agency has cited the debt crisis and a possible Greek exit from Eurozone, as the primary reason behind this move. Other European countries, such as Italy and Spain, whose economies are going through severe recession, have so far not called for a bailout. The ratings agencies however, are aware that sooner or later, stronger economies such as Germany, might have to open their pockets to support them. Furthermore, if Greece decides to leave Euro then that "would set off a chain of financial sector shocks" and Germany might find itself in a very difficult position.

Moody’s has said in a statement, that even if Greece’s exit is somehow avoided, “there is an increasing likelihood that greater collective support for other euro area sovereigns, most notably Spain and Italy, will be required” and “the burden will likely fall most heavily on more highly rated member states [such as Germany]”

Responding to the decrease in ratings, the German Finance Ministry belives that the economic foundations of the country are strong it “will retain its 'safe haven' status and continue to play its role as the anchor in the euro zone responsibly,"

Your Comments and Feedback are always appreciated