Thursday

20th Sep 2018

Eurozone crisis worsens as Germany warned on top rating

  • Spanish airport: The country's borrowing costs have soared to record highs (Photo: Luc Mercelis)

The euro-crisis is accelerating as Spanish borrowing costs continue rising and Germany, Netherlands and Luxembourg on Monday (23 July) were warned they may lose their triple A rating due to 'rising uncertainty.'

Moody's, one of the big three credit ratings agencies, said risks that Greece may quit the eurozone and an "increased likelihood" that Spain and Italy would need more financial assistance weighs down on the three top-rated countries, as Germany is the main contributor to the bailout pot.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

Moody's kept a triple A rating for France and Austria but warned that this may change by the end of September. Both countries were downgraded earlier this year by Standard&Poor's, another major agency.

Markets fell across the world on Monday and investors dumped European assets, except for German government bonds, which are still considered a safe haven at record low interest rates of little over one percent. Spanish borrowing costs, however, rose above 7.5 percent - both for 10-year as well as 5-year bonds - a level which is considered bailout territory.

"By means of its solid economic and financial policy, Germany will retain its 'safe haven' status and continue to play its role as the anchor in the euro zone responsibly," the German finance ministry said in a statement.

Despite the downgrade warning, "Germany continues to find itself in a very solid economic and financial situation," it added.

The only triple-A rated country not to face a downgrade in the following months is Finland, which has demanded collateral on bailouts in Spain and Greece, runs a fiscally conservative budget and has limited trade links with the rest of the eurozone.

In a bid to stem the markets' descent, Italy and Spain on Monday reinstated a ban on so-called short selling - bets on falling stocks.

The government in Madrid - despite a freshly agreed eurozone bailout of up to €100 billion - faces further funding problems as one of its regions, Valencia, officially asked for a bailout to pay off its debt. El Pais newspaper reports five more regions may soon do the same, as they have no means of paying back their €15 billion of debt redemption due later this year.

Spanish economy minister Luis de Guindos is expected in Berlin on Tuesday for talks with his German counterpart, Wolfgang Schauble. De Guindos has so far insisted that his country will not seek a full-blown bailout. But its unsustainable borrowing costs and the bankruptcy facing its regions make investors believe the opposite.

"The rise in the 10-year yield well beyond 7 percent carries a very distinct reminder of events in Greece in April 2010, Ireland in October 2010 and Portugal in February 2011," the Bank of New York Mellon said in a note to investors. "In each case, a decisive move beyond 7 percent signalled the start of a collapse in investor confidence that, in each case, led to a bailout within weeks," it added.

The only way to avoid that would be if the European Central Bank intervened - as it did last year - in buying up Spanish bonds. Spanish officials in recent weeks have called on the ECB to step in, but so far this has not happened.

According to data published on its website, the ECB has not bought any sovereign bonds since February. The governing council of the ECB is meeting next week in Frankfurt when a decision on bond purchases could be taken.

Spanish bailout deal to be sealed amid protests

Eurozone finance ministers on Friday are set to iron out the final details of bailout of up to €100bn for the Spanish banking sector, just as tens of thousands Spaniards took to the streets in protest against fresh spending cuts.

'Every group split' ahead of EU copyright vote

Political groups in the European Parliament are split about how to vote for a directive that would reform the EU's copyright regime - amid warnings that freedom of expression and creators' rights are at risk.

Opinion

Aid, migration and the next EU budget

Th next EU budget is the most pivotal opportunity to advance a vision for Europe rooted in human rights and that builds a Union that works for all its members.

Stakeholders' Highlights

  1. NORDIC COUNCIL OF MINISTERSThe Nordic gender effect goes international
  2. NORDIC COUNCIL OF MINISTERSPaula Lehtomaki from Finland elected as the Council's first female Secretary General
  3. NORDIC COUNCIL OF MINISTERSNordic design sets the stage at COP24, running a competition for sustainable chairs.
  4. Counter BalanceIn Kenya, a motorway funded by the European Investment Bank runs over roadside dwellers
  5. ACCACompany Law Package: Making the Best of Digital and Cross Border Mobility,
  6. IPHRCivil Society Worried About Shortcomings in EU-Kyrgyzstan Human Rights Dialogue
  7. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs
  8. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All
  9. IPHRCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  10. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  11. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  12. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want

Join EUobserver

Support quality EU news

Join us