Eurozone crisis: Germany’s credit rating under review

THE eurozone crisis looked set to deepen as Germany’s triple A credit status was put under threat today.

Credit ratings agency Moody’s lowered its outlook on Germany’s credit rating to “negative” from “stable”, denting faith in Europe’s strongest economy.

The move came after a turbulent day for the single currency bloc, which saw the yield on ten-year Spanish bond hit euro-era highs of 7.5 per cent as it became increasingly likely that the country will need a bailout from the European Union.

But a possible downgrade for Germany, following France and Austria’s reduced credit status earlier this year, could undermine hopes for a recovery and could also hit Chancellor Angela Merkel’s chances of re-election.

Germany has been seen as the bulwark nation against a collapse of the euro as the richest nation in the 17-country currency zone.

An assessment is due today on whether Greece should get the last tranches of bailout money worth 31.5 billion euros, and separately German finance minister, Wolfgang Schaeuble, is to meet the Spanish Economy Minister, Luis de Guindos, in Berlin for emergency talks.

Moody’s said the unresolved crisis and the chances of defaults in Spain and Italy as well as Greece leaving the zone meant that Germany’s status needed to be reviewed.

It said in a statement: “Even if such an event [a Greek exit] is avoided, there is an increasing likelihood that greater collective support for other euro area sovereigns, most notably Spain and Italy, will be required.

“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 “

Mike McCudden, head of derivatives at Interactive Investor, said: “At the moment all eyes are on the eurozone and as is continues to lurch from one catastrophe to the next.

“As Spain clearly cannot finance its debts while trying to stabilise the economy it is only a matter of time before we see a request for a formal bailout.

“With no sign of the miracle required to stem the rot, the bears will remain in full control of this market for the time being.”

Banking stocks suffered amid the ongoing weak sentiment and following reports that they would reveal additional charges for mis-selling payment protection insurance.

Royal Bank of Scotland was 2 per cent or 4.3p lower at 193.5p, Barclays slipped 2.3p to 150.3p and Lloyds Banking Group dropped 0.4p to 28.9p.