Wednesday, July 25, 2012
Eurozone nations’ sovereignty v AAA
July 25, 2012
Late last night Moody's put the eurozone's operational bailout fund, the European Financial Stability Facility, on so-called "negative outlook", which means it is at serious risk of losing its AAA credit rating.
There was nothing surprising in this announcement. It was made inevitable by Moody's earlier decision to declare that Germany, the Netherlands and Luxembourg were in danger of losing their cherished AAA ratings - in that Germany guarantees 29.1% of the EFSF's borrowings, the Netherlands guarantees 6.1% and Luxembourg 0.3%.
Among the EFSF's guarantors, only Finland retains a stable AAA. And there is no way that the EFSF's AAA can be sustained by small but fiscally super-strong Finland alone (Finland, like its non-EU neighbour Norway, has no net debt at all on a net basis).
Inevitably, eurozone leaders are grumpy with Moody's. But perhaps they should, for once, thank this member of the widely reviled credit-rating fraternity. Because Moody's may have presented an opportunity to them to frame the debate on the future of the eurozone in a way that makes the choices for the citizens of Europe easier to see.