The ratings agency Moody’s announced late Friday in Frankfurt that it had downgraded the eurozone’s bailout funds from the top rating of Aaa by one notch to Aa1 on long-term debt.
Both the European Stability Mechanism (ESM), the currency zone’s newly minted permanent rescue fund, and the temporary European Financial Stability Facility (EFSF) were given continued negative rating outlooks by Moody’s, raising the threat of further downgrades.
After recent downgrades and negative outlooks imposed by rating agencies on numerous governments in the eurozone, the bailout funds’ downgrades were not unexpected.
The Luxembourg-based eurozone funds quickly issued a statement noting that Moody’s decision “follows the recent change of France’s long-term rating from Aaa to Aa1.” France holds a 20.3-per-cent stake in the ESM, second only to Germany’s 27.1 per cent of the fund’s €700-billion “firewall.”
“Moody’s rating decision is difficult to understand,” said Klaus Regling, ESM managing director and EFSF chief executive. “We disagree with the rating agency’s approach, which does not sufficiently acknowledge ESM’s exceptionally strong institutional framework, political commitment and capital structure.” He said the downgrade would not “in any way” inhibit the rescue fund from taking action or issuing credit to fiscally stressed member governments.
Moody’s left the rescue funds’ top-notch short-term credit ratings unchanged. “This underlines ESM’s uniquely robust capital structure and the solidity of EFSF,” the funds said.
The rescue funds noted that they continue to enjoy the rival Fitch rating agency’s top-notch AAA long-term rating.
The EFSF temporary fund was established in 2010 when Greece became the eurozone’s first country to need a full-fledged financial rescue, and was later part of the bailouts for Ireland and Portugal.
The ESM permanent bailout fund, inaugurated on October 8, 2012 after months of delays, was created in hopes of alleviating the budget and banking crises that have plagued the common currency area for more than two years.
Jean-Claude Juncker, president of the Eurogroup of finance ministers in the currency zone and chairman of both funds, said the eurozone’s 17 member states remain politically and financially “fully committed” to the rescue funds and “stand firmly behind both institutions.” Germany retains its triple-A rating with all three major ratings agencies, though Moody’s has imposed a negative outlook on Europe’s largest economy.