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Moody's wields downgrading tool
Source: Agencies |
February 15, 2012, Wednesday
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RATINGS agency Moody's Investor Service on Monday downgraded its credit ratings on Italy, Portugal and Spain, while France, Britain and Austria kept their top ratings but had their outlooks dropped to "negative" from "stable."
Moody's also cut its ratings on the smaller nations of Slovakia, Slovenia and Malta. All nine countries are members of the European Union.
The agency said it took the actions due to the uncertainty over EU financial reforms, the region's weak economic outlook and the resulting pressure on fragile markets. Government debt ratings can play a major role in countries' borrowing costs because they often lead to higher interest rates that must be paid to offset investors taking on greater risk.
Moody's moves were less severe than those taken last month by rival ratings agency Standard & Poor's, which downgraded nine European countries, including stripping France and Austria of their AAA status.
Fitch ratings downgraded Italy, Spain, Belgium, Cyprus and Slovenia last month.
"The limited magnitude of our rating adjustments reflects the gradual progress that European policymakers have made in agreeing to and implementing reforms, and their demonstrated commitment and desire to resolve the underlying fundamental macroeconomic and fiscal imbalances," Moody's said in a statement.
Italy's rating dropped to A3 from A2, which keeps it at investment grade under Moody's system. Spain declined to A3 from A1. Portugal was cut further to "junk" status, dropping to Ba3 from Ba2.
The agency reduced Slovakia and Slovenia to A2 from A1, while it trimmed Malta to A3 from A2.
"All of these ratings remain on negative outlook given the continued uncertainty regarding financing conditions over the next few quarters and its corresponding impact on creditworthiness," Moody's said.
A negative outlook means Moody's expects at least a 40 percent chance that it could downgrade a country's rating over the next 18 months.
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