Monday

26th Jun 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.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

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.

Row between EU ministers halts e-book tax rate

A bill to reduce VAT rates on e-books and e-publications has become the latest victim of a row between the Czech Republic and its partners over its own plan to collect VAT.

Focus

EU and China move to fill US void

At a summit in Brussels, EU and Chinese leaders will attempt to deepen ties on trade and climate as US president Trump plans to pull out of the Paris climate deal.

Italy reaches EU deal on failing bank

After months of negotiations, the European Commission and Italy agreed on the terms of rescue for Monte dei Paschi di Siena bank, including job cuts, salary caps and private sector involvement in the bailout.

News in Brief

  1. Merkel and Macron hold symbolic joint press conference
  2. Juncker has 'no' clear idea of kind of Brexit UK wants
  3. Belgian PM calls May's proposal on EU citizens 'vague'
  4. UK lacks support of EU countries in UN vote
  5. Spain to command anti-smuggler Mediterranean force
  6. Estonia confirms opposition to Nord Stream 2 pipeline
  7. Ireland and Denmark outside EU military plan
  8. EU leaders renew vows to uphold Paris climate deal

Stakeholders' Highlights

  1. EPSUOn Public Services Day, Stop Austerity! Workers Need a Pay Rise!
  2. EGBAOnline Gambling: The EU Court Rejects Closed Licensing Regimes In Member States
  3. World VisionFaces of Today, Leaders of Tomorrow: Join the Debate on Violence Against Girls - 29 June
  4. ECR GroupThe EU Must Better Protect Industry from Unfair Competition
  5. Malta EU 2017Better Protection for Workers From Cancer-Causing Substances
  6. EPSUAfter 9 Years of Austerity Europe's Public Sector Workers Deserve a Pay Rise!
  7. Dialogue PlatformGlobalised Religions and the Dialogue Imperative. Join the Debate!
  8. UNICEFEU Trust Fund Contribution to UNICEF's Syria Crisis Response Reaches Nearly €200 Million
  9. EUSEW17Bringing Buildings Into the Circular Economy. Discuss at EU Sustainable Energy Week
  10. European Healthy Lifestyle AllianceCan an Ideal Body Weight Lead to Premature Death?
  11. Malta EU 2017End of Roaming Charges: What Does It Entail?
  12. World VisionWorld Refugee Day, a Dark Reminder of the Reality of Children on the Move

Latest News

  1. Macron’s investment screening idea watered down by leaders
  2. Leaders unimpressed by May’s offer to EU citizens
  3. New Irish PM praises unscripted nature of EU summits
  4. EU extends sanctions on Russia
  5. UK's universities set 'Brexit wish list'
  6. Decision on post-Brexit home for EU agencies postponed
  7. May's offer on citizens’ rights dismissed as ‘pathetic’
  8. 'Historic' defence plan gets launch date at EU summit