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Auf Wiedersehen Stable Outlook

Despite Germany retaining a stable outlook with credit agencies Standard & Poor and Fitch Ratings, Moody’s Investors Service has lowered the nation’s outlook to negative.

Moody’s cited recent developments in the euro-zone crisis, such as the increased risk of a Greek exit, as the primary reason behind the decision.

Germany, along with Luxembourg and the Netherlands, still posses their desirable AAA rating, but this step could indicate downgraded ratings for the nations in the future.

The German government responded to Moody’s announcement by asserting that the risks highlighted by the credit agency had been evident for some time and are principally based on a short-term assessment.

The German Ministry went on emphasis the continuing solidity of their economy, stating that: ‘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’.

Despite Germany’s view of its economic resilience, with Greek, Spanish and Italian survival in the balance Moody’s presentation of a negative outlook for Europe’s largest and most integral economy is a worrying development.

Below are excerpts of a statement released by Moody’s detailing why the outlooks of AAA rated Germany, the Netherlands and Luxembourg have been lowered.


‘All four sovereigns are adversely affected by the following two euro-area-wide developments:

1.) The rising uncertainty regarding the outcome of the euro area debt crisis given the current policy framework, and the increased susceptibility to event risk stemming from the increased likelihood of Greece’s exit from the euro area, including the broader impact that such an event would have on euro area members, particularly Spain and Italy.

2.) Even if such an event is avoided, there is an increasing likelihood that greater collective support for other euro area sovereigns, most notably Spain and Italy, will be required. Given the greater ability to absorb the costs associated with this support, this burden will likely fall most heavily on more highly rated member states if the euro area is to be preserved in its current form.


Over the long term, Moody’s believes that institutional reforms within the euro area have the potential to strengthen the credit standing of most or all euro area governments; however, over the transitional period (which could last many years), the additional pressure on the strongest nations’ balance sheets will increase the pressure on their credit standing.

Accordingly, Moody’s now has negative outlooks on those Aaa-rated euro area sovereigns whose balance sheets are expected to bear the main financial burden of support […] These countries now comprise Germany and the Netherlands, in addition to Austria and France whose rating outlooks were changed to negative on 13 February 2012 […] Finland, with its stable outlook, is now the sole exception among the Aaa-rated euro area sovereigns’


In their statement Moody’s also asserted that: ‘Although Finland would not be expected to be unaffected by the euro crisis, its net assets (Finland has no debt on a net basis), its small and domestically oriented banking system, its limited exposure to, and therefore relative insulation from, the euro area in terms of trade, and its attempts to collateralise its euro area sovereign support together provide strong buffers which differentiate it from the other Aaas.’

Finland therefore retained a stable outlook, becoming the only AAA rated nation to do so.