Moody's Says A Fresh European Slowdown Will Result In A New Round Of Rating Downgrades
According to Moody's semi-annual European Sovereign Outlook report, published earlier, the rating agency is once again on track to destabilize Europe, by firing the latest warning shot. In the report the agency, which at last check is still without a sovereign research head after the current one left some time ago, said that slower economic growth in Europe might spark downgrades to credit ratings for countries on the continent, as any slowdown could weaken the ability of individual countries to absorb additional shocks to the system, as cited by Dow Jones. "The ratings agency said that the fiscal and economic adjustments necessary to stabilize government debt ratios are likely to be difficult and painful." In other words more than magic may be required to keep the insolvent continent together (and for the very unshocking observation that Spain has been using its social security fund to buy up its bond to keep the false impression that all is good, read today's Frontrunning). In other words, the latest currency devaluation race is once again on. And for the time being the AUD seems to be taking its overnight mispricing from much lower fair values in stride.
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"Given the magnitude of the fiscal challenge and the need to sustain tight fiscal policy for several years, the risk to economic growth are clearly a downside risk for sovereign ratings," the European Sovereign Outlook report said.
Moody's also noted the divergence continuing to spread as European countries cope with their individual fiscal positions.
"Another challenge is the need to manage the fallout from the wide discrepancies in economic and fiscal performance over the past few years," it said.
In this, the process of deleveraging might also be a specific danger to the ratings of certain countries.
"Those countries that are facing persistently strong deleveraging could experience renewed negative pressure on their ratings in the future, depending on how long the process lasts," Moody's said.