In a sign that a probable settlement of negotiations among Greece, the IMF, ECB, and EU for a new aid package for the small nation has done nothing to curtail concerns about the sovereign paper of other governments in the region, Moody’s downgraded several nations and put others on credit watch.
The hardest hit was Spain which was downgraded to A3 from A1 and given a negative outlook. Spain’s unemployment is over 22%. The country’s political leaders say that the economy contracted in the last quarter of 2011 and will do so this quarter as well. And, the nation’s bank system is in deep troubled because of real estate holding which have lost much of their value
Portugal and Italy, two other countries at the center of the debt crisis were downgrade, and the UK was put on negative watch.
Moody’s actions can be summarised as follows:
- Austria: outlook on Aaa rating changed to negative
- France: outlook on Aaa rating changed to negative
- Italy: downgraded to A3 from A2, negative outlook
- Malta: downgraded to A3 from A2, negative outlook
- Portugal: downgraded to Ba3 from Ba2, negative outlook
- Slovakia: downgraded to A2 from A1, negative outlook
- Slovenia: downgraded to A2 from A1, negative outlook
- Spain: downgraded to A3 from A1, negative outlook
- United Kingdom: outlook on Aaa rating changed to negative
The main drivers of today’s actions are:
- The uncertainty over (i) the euro area’s prospects for institutional reform of its fiscal and economic framework and (ii) the resources that will be made available to deal with the crisis.
- Europe’s increasingly weak macroeconomic prospects, which threaten the implementation of domestic austerity programmes and the structural reforms that are needed to promote competitiveness.
- The impact that Moody’s believes these factors will continue to have on market confidence, which is likely to remain fragile, with a high potential for further shocks to funding conditions for stressed sovereigns and banks.