Moody's Cuts EU View to Negative

Just a day after Markit data showed more weakness in the PMI of almost every eurozone nation and a week after Eurostat reported that unemployment in the region reached an all-time high, Moody's cut its outlook on the EU AAA rating to "negative" While it is unlikely the action will effect the EU's ability to raise money, it does indicate how seriously the credit market worries about the future of the union are.

The credit agency wrote:

Moody's Investors Service has today changed to negative from stable its outlook on the Aaa long-term issuer rating of the European Union (EU). The rating agency has also changed to negative from stable its outlook on the provisional (P)Aaa rating of the EU's medium-term note (MTN) programme.

A provisional rating for a debt facility is an indication of the rating Moody's would likely assign to future draw-downs from the facility, pending the receipt of documentation detailing the terms of the debt issuance. Moody's policy is to assign provisional ratings to all MTN programmes.

The outlook change to negative reflects the negative outlooks now assigned to the Aaa sovereign ratings of key contributors to the EU budget: Germany, France, the UK and the Netherlands, which together account for around 45% of the EU's budget revenue. Moody's believes that it is reasonable to assume that the EU's creditworthiness should move in line with the creditworthiness of its strongest key member states considering the significant linkages between member states and the EU, and the likelihood that the large Aaa-rated member states would likely not prioritise their commitment to backstop the EU debt obligations over servicing their own debt obligations. On 23 July 2012, Moody's had changed to negative its outlooks for the Aaa ratings of Germany and the Netherlands

Douglas A. McIntyre

Filed under: 24/7 Wall St. Wire, Analyst Calls Tagged: featured