Monday

18th Dec 2017

Eurozone bailout funds downgraded over France

  • Will France ever pay back its debt? Moody's says there's a "marginal diminution in the certainty" it will do so. (Photo: wikipedia)

Moody's ratings agency on Friday (30 November) downgraded the eurozone's two bailout funds following a recent similar move on France, the second-largest contributor to the rescue funds.

The European Stability Mechanism, a permanent €500 billion-strong fund established on 9 October, was downgraded to Aa1 - the second-best available rating. Its predecessor - the European Financial Stability Facility due to be phased out next year - was downgraded to a "provisional" Aa1. Further downgrades may follow, Moody's said.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

Both funds have France as their second-largest contributor and Moody's on 18 November decided to strip the French state of its top rating due to its sluggish economy and worsening competitiveness compared to Germany.

"The credit risks and ratings of the ESM and the EFSF are closely aligned to those of its strongest supporters," Moody's said. France's downgrade reflects a "marginal diminution in the certainty" Paris will repay its debt and honour its commitment to pay its share to the ESM, Moody's explained.

The ratings agency kept Germany's top rating unchanged. Germany is the largest contributor to the two bailout funds, which are being used for raising money on the markets to fund the bailout programmes for Greece, Ireland, Portugal and Spain.

"Moody's rating decision is difficult to understand," Klaus Regling who chairs both funds said in a statement.

"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 added.

However, given that Aa1 is the second-best available rating, the downgrade will not "inhibit ESM or EFSF in any way" to issue bonds and borrow money, Regling said.

European Central Bank chief Mario Draghi said during a conference in Paris on Friday that the downgrade will have little effect but that it was a "signal to be taken seriously."

EU law for ratings agencies

Meanwhile, a deal by EU countries and the European Parliament sealed earlier this week seeks to limit the influence of big credit rating agencies.

Moody's, Standard&Poor's and Fitch are the world's three largest agencies and their assessments about the likelihood of whether countries and companies will pay back their debt are central their borrowing rates. If the rating is in the so-called junk category, certain banks and pension funds cannot buy them or accept them as guarantees for other banks' loans.

"Credit rating agencies will have to be more transparent when rating sovereign states, respect timing rules on sovereign ratings and justify the timing of publication of unsolicited ratings of sovereign debt," financial services commissioner Michel Barnier said in a statement.

"They will have to follow stricter rules which will make them more accountable for mistakes in case of negligence or intent."

But some MEPs remain sceptical about how much this EU bill will do in changing agencies' behaviour.

"This reform is no big breakthrough in changing the rating agency market," said German Green MEP Sven Giegold, who was involved in the negotiations.

France stripped of another top rating

Moody's on Monday became the second ratings agency to strip France of its top rating, citing continued economic woes and lack of competitiveness.

Eurozone bail-out fund loses triple-A rating

The Eurozone's bail-out fund was downgraded by one notch to AA+ by the US ratings agency Standard & Poor's on Monday - a move likely to put an extra financial burden on contributing nations.

Ratings agency downgrades EU on summit day

A top US agency has downgraded the bloc's rating over concerns that some member states - notably Britain - may not pay their share into the common budget.

EU set to probe Ikea tax affairs

Swedish founded furniture retailer Ikea has reportedly been targeted by the European Commission, which is set to launch an investigation into how tax schemes in the Netherlands allegedly enabled it to avoid paying into public coffers.

Stakeholders' Highlights

  1. Dialogue PlatformThe Gülen Community: Who to Believe - Politicians or Actions?" by Thomas Michel
  2. Plastics Recyclers Europe65% plastics recycling rate attainable by 2025 new study shows
  3. European Heart NetworkCommissioner Andriukaitis' Address to EHN on the Occasion of Its 25th Anniversary
  4. ACCACFOs Risk Losing Relevance If They Do Not Embrace Technology
  5. UNICEFMake the Digital World Safer for Children & Increase Access for the Most Disadvantaged
  6. European Jewish CongressWelcomes Recognition of Jerusalem as the Capital of Israel and Calls on EU States to Follow Suit
  7. Mission of China to the EUChina and EU Boost Innovation Cooperation Under Horizon 2020
  8. European Gaming & Betting AssociationJuncker’s "Political" Commission Leaves Gambling Reforms to the Court
  9. AJC Transatlantic InstituteAJC Applauds U.S. Recognition of Jerusalem as Israel’s Capital City
  10. EU2017EEEU Telecom Ministers Reached an Agreement on the 5G Roadmap
  11. European Friends of ArmeniaEU-Armenia Relations in the CEPA Era: What's Next?
  12. Mission of China to the EU16+1 Cooperation Injects New Vigour Into China-EU Ties