Full Text Of S&P Warning On GermAAAny

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Germany's Unsolicited Long-Term 'AAA' Rating Placed On CreditWatch Negative

  • Standard & Poor's is placing its 'AAA' long-term unsolicited sovereign credit rating on the Federal Republic of Germany on CreditWatch with negative implications. At the same time we are affirming Germany's 'A-1+' short-term unsolicited sovereign credit rating.
  • The CreditWatch placement is prompted by our concerns about the potential impact on Germany of what we view as deepening political, financial, and monetary problems within the European Economic and Monetary Union.
  • Our CreditWatch review will focus on the "political" and "monetary" scores we have assigned to Germany in accordance with our criteria.
  • We expect to conclude our review as soon as possible after the European summit on Dec. 9, 2011.

FRANKFURT (Standard & Poor's) Dec. 5, 2011--Standard & Poor's Ratings Services today placed its 'AAA' long-term unsolicited sovereign credit rating on the Federal Republic of Germany on CreditWatch with negative implications. At the same time we affirmed the 'A-1+' short-term unsolicited sovereign credit rating on Germany.

Our transfer and convertibility (T&C) assessment for Germany, as for all European Economic and Monetary Union (eurozone) members, is 'AAA', reflecting Standard & Poor's view that the likelihood of the European Central Bank (ECB) restricting nonsovereign access to foreign currency needed for debt service is extremely low. This reflects the full and open access to foreign currency that holders of euros enjoy and which we expect to remain the case in the future.

RATIONALE

The CreditWatch placement is prompted by our concerns about the potential impact on Germany of what we view as deepening political, financial, and monetary problems within the eurozone. To the extent that these eurozone-wide issues permanently constrain the availability of credit to the economy, Germany's economic growth outlook--and therefore the prospects for a sustained reduction of its public debt ratio--could be affected. Further, it is our opinion that the lack of progress the European policymakers have made so far in controlling the spread of the financial crisis may reflect structural weaknesses in the decision-making process within the eurozone and European Union. This, in turn, informs our view about the ability of European policymakers to take the proactive and resolute measures needed in times of financial stress. We are therefore reassessing the eurozone's record of debt-crisis management and its implications for our view on the effectiveness of policymaking in Germany.

Our CreditWatch review will focus on two areas of our criteria. (See "Sovereign Government Rating Methodology and Assumptions," published June 30, 2011.)

  • The political score. In our view, the overall consistency, predictability, and effectiveness of policy coordination among institutions within the eurozone has weakened at a time of severe ongoing fiscal and economic challenges to a degree more than we envisioned. For Germany, we believe this environment could offset the fiscal consolidation and institutional progress it has made in recent years, such as establishing constitutional public-sector deficit limits. Specifically, we will review the policymaking environment in terms of: the predictability of its overall policy framework and its policy responses to current developments (see "Sovereign Government Rating Methodology and Assumptions," paragraph 40; all paragraph references herein are to this publication); and the effectiveness of policymaking in addressing periods of economic distress and correcting economic imbalances (paragraph 41).
  • The monetary score. We will review the ECB's policy settings and their impact on financial market conditions, the real economy, and ultimately Germany's creditworthiness (paragraphs 107, 117, and 118). If we were to conclude that the ECB's policy stance is unlikely to be effective in mitigating the economic and financial shocks that we believe Germany could be experiencing, we could lower this score.

CREDITWATCH

We expect to conclude our review as soon as possible after the European summit on Dec. 9, 2011.

If we change both scores, we could lower the rating by one notch to 'AA+' (paragraph 24). Conversely, if the above concerns were mitigated by what we consider to be appropriate policy action, we could affirm the rating at 'AAA'.