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Moody's Changes Aaa-Rated Germany, Netherlands, Luxembourg Outlook To Negative

Tyler Durden's picture




 

In a first for Moody's, the rating agency, traditionally about a month after Egan Jones (whose rationale and burdensharing text was virtually copied by Moody's: here and here), has decided to cut Europe's untouchable core, while still at Aaa, to Outlook negative, in the process implicitly downgrading Germany, Netherlands and Luxembourg, and putting them in line with Austria and France which have been on a negative outlook since February 13, 2012.The only good news goes to Finland, whose outlook is kept at stable for one simple reason: the country's attempts to collateralize its European bailout exposure, a move which will now be copied by all the suddenly more precarious core European countries.

From the report:

Moody's changes  the outlook to negative on Germany, Netherlands, Luxembourg and affirms Finland's Aaa stable rating
 
London, 23 July 2012 -- Moody's Investors Service has today revised to negative from stable the outlooks on the Aaa sovereign ratings of Germany, the Netherlands and Luxembourg. In addition, Moody's has also affirmed Finland's Aaa rating and stable outlook.
 
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.
 
These increased risks, in combination with the country-specific considerations discussed below, have prompted the changes in the rating outlooks of Germany, the Netherlands and Luxembourg. In contrast, Finland's unique credit profile, as discussed below, remains consistent with a stable rating outlook.
 
RATIONALE FOR OUTLOOK CHANGE
 
Today's decision to change to negative the outlooks on the Aaa ratings of Germany, the Netherlands and Luxembourg is driven by Moody's view that the level of uncertainty about the outlook for the euro area, and the potential impact of plausible scenarios on member states, are no longer consistent with stable outlooks.
 
Firstly, while it is not Moody's base case, the risk of an exit by Greece from the euro area has increased relative to the rating agency's expectations earlier this year. In Moody's view, a Greek exit from the monetary union would pose a material threat to the euro. Although Moody's would expect a strong policy response from the euro area in such an event, it would still set off a chain of financial-sector shocks and associated liquidity pressures for sovereigns and banks that policymakers could only contain at a very high cost. Should they fail to do so, the result would be a gradual unwinding of the currency union, which Moody's continues to believe would be profoundly negative for all euro area members. The rating agency has reflected this risk by raising the score for the "Susceptibility to Event Risk" factor in its sovereign rating methodology from "very low" to "low" for these three countries.
 
Secondly, even in the absence of any exit, the contingent liabilities taken on by the strongest euro area sovereigns are rising as a result of European policymakers' continued reactive and gradualist policy response, as is the probability of those liabilities crystallising (as Moody's already observed in a recent Special Comment, entitled "Moody's: EU Summit's Measures Reduce Likelihood of Shocks but at a Cost", published on 5 July 2012). Moody's view remains that this approach will not produce a stable outcome, and will very likely be associated with a series of shocks, which are likely to rise in magnitude the longer the crisis persists. The continued deterioration in Spain and Italy's macroeconomic and funding environment has increased the risk that they will require some kind of external support. The scale of these contingent liabilities is of a materially larger order of magnitude for these countries due to their size and their debt burdens; for example, the size of Spain's economy and government bond market is around double the combined size of those of Greece, Portugal and Ireland. Although the rising likelihood of stronger euro area members needing to support other sovereigns has not yet affected Moody's assessment of these sovereigns' "Government Financial Strength" in its rating methodology, the rating agency nevertheless believes that it needs to take some account of the impact that additional financial commitments would have on the assessment of their financial strength, given the material deterioration in these countries' fiscal metrics since 2007. 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 -- whether because of the need to expand the European Stability Mechanism (ESM) or the need to develop more ad hoc forms of liquidity 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. The credit profile of these sovereigns is most affected by the policy dilemma described above.
 
Finland, with its stable outlook, is now the sole exception among the Aaa-rated euro area sovereigns. 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.
 
Today's actions on the four sovereigns' outlooks incorporate the implications of certain euro area developments, such as the rising risk of a Greek exit, the growing likelihood of collective support for other euro area sovereigns, and stalled economic growth. By the end of the third quarter, Moody's will also assess the implications of these developments for Aaa-rated Austria and France, whose rating outlooks were moved to negative from stable in February. Specifically, Moody's will review whether their current rating outlooks remain appropriate or whether more extensive rating reviews are warranted.
 
***
 
MOODY'S CHANGES OUTLOOK ON GERMANY'S Aaa RATING TO NEGATIVE
 
In the context of today's rating actions, Moody's has changed the outlook on Germany's Aaa government bond ratings to negative from stable. The Aaa rating itself remains unchanged.
 
The key drivers of today's action on Germany are:
 
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.
 
2.) The rising contingent liabilities that the German government will assume as a result of European policymakers' reactive and gradualist policy response, which comes on top of a marked deterioration in the country's own debt levels relative to pre-crisis levels.
 
3.) The vulnerability of the German banking system to the risk of a worsening of the euro area debt crisis. The German banks' sizable exposures to the most stressed euro area countries, particularly to Italy and Spain, together with their limited loss-absorption capacity and structurally weak earnings, make them vulnerable to a further deepening of the crisis.
 
In a related rating action, Moody's has today changed the outlook to negative from stable for the long-term Aaa rating and short-term P-1 rating of FMS Wertmanagement. Like Germany's Aaa rating, the ratings of this entity remain unchanged.
 
FMS Wertmanagement is a resolution agency or "bad bank" scheme for 100% state-owned Hypo Real Estate (HRE) Group created under the Financial Market Stabilisation legislation in Germany ("Finanzmarktstabilisierungsfondsgesetz" -- FMStFG). The German government has a loss compensation obligation via the government's Financial Market Stabilisation Fund (SoFFin) who owns FMS Wertmanagement.
Moody's views FMS Wertmanagement's creditworthiness as being linked to that of the German government because the government remains generally responsible for any losses and any liquidity shortfalls of FMS Wertmanagement.
 
--RATIONALE FOR NEGATIVE OUTLOOK
 
As indicated in the introduction to this press release, the first rating driver underlying Moody's decision to change the outlook on Germany's Aaa bond rating to negative is the level of uncertainty about the outlook for the euro area and the impact that this has on the country's susceptibility to event risk. Specifically, the material risk of a Greek exit from the euro area exposes core countries such as Germany to a risk of shock that is not commensurate with a stable outlook on their Aaa rating. The elevated event risk in turn increases the probability that the contingent liabilities will eventually crystallise, with Germany bearing a significant share of the overall liabilities.
 
The second and interrelated driver of the change in outlook to negative is the increase in contingent liabilities that is associated with even the most benign scenario of a continuation of European leaders' reactive and gradualist approach to policymaking. The likelihood is rising that the strong euro area states will need to commit significant resources in order to deepen banking integration in the euro area and to protect a wider range of euro area sovereigns, including large member states, from market funding stress. As the largest euro area country, Germany bears a significant share of these contingent liabilities. The contingent liabilities stem from bilateral loans, the EFSF, the European Central Bank (ECB) via the holdings in the Securities Market Programme (SMP) and the Target 2 balances, and -- once established -- the European Stability Mechanism (ESM).
 
The third rating driver is based on the German banking system's vulnerability to the risk of a worsening of the euro area debt crisis.
German banks have sizable exposures to the most stressed euro area countries, particularly to Italy and Spain. Moody's cautions that the risks emanating from the euro area crisis go far beyond the banks'
direct exposures, as they also include much larger indirect effects on other counterparties, the regional economy and the wider financial system. The German banks' limited loss-absorption capacity and structurally weak earnings make them vulnerable to a further deepening of the crisis.
 
--RATIONALE FOR GERMANY'S UNCHANGED Aaa RATING
 
Germany remains a Aaa-rated credit as its creditworthiness is underpinned by the country's advanced and diversified economy and a tradition of stability-oriented macroeconomic policies. High productivity growth and strong world demand for German products have allowed the country to establish a broad economic base with ample flexibility, generating high income levels. Germany's current account surplus supports the resiliency of the economy. Moreover, Germany enjoys high levels of investor confidence, which are reflected in very low debt funding costs, leading to very high debt affordability.
 
--WHAT COULD MOVE THE RATING DOWN
 
Germany's Aaa rating could potentially be downgraded if Moody's were to observe a prolonged deterioration in the government's fiscal position and/or the economy's long-term strength that would take debt metrics outside scores that are commensurate with a Aaa rating. This could happen if (1) the German government needed to use its balance sheet to support the banking system, leading to a material increase in general government debt levels; (2) any country were to exit the European monetary union, as such an event is expected to set off a chain of financial-sector shocks and associated liquidity pressures for sovereigns that would entail very high cost for wealthy countries such as Germany, and cause contingent liabilities from the euro area to increase; (3) debt-refinancing costs were to rise sharply following a loss of safe-haven status.
 
--WHAT COULD MOVE THE OUTLOOK BACK TO STABLE
 
Conversely, the rating outlook could return to stable if a benign outlook for the euro area, reduced stress in non-core countries and less adverse macroeconomic conditions in Europe in general were to ease medium-term uncertainties with regard to the country's debt trajectory.
 
***
 
MOODY'S CHANGES THE OUTLOOK ON THE NETHERLANDS' Aaa RATING TO NEGATIVE
 
Moody's Investors Service has today changed the outlook on the Netherlands' Aaa government bond rating to negative from stable. The Aaa rating itself remains unchanged.
 
The key drivers of today's action on the Netherlands are:
 
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.
 
2.) The rising contingent liabilities that the Dutch government will assume as a result of European policymakers' reactive and gradualist policy response, which comes on top of a marked deterioration in the country's own debt levels relative to pre-crisis levels.
 
3.) The Netherlands' own domestic vulnerabilities, specifically the weak growth outlook, high household indebtedness, and falling house prices, whose impact is amplified by this heightened event risk.
 
--RATIONALE FOR NEGATIVE OUTLOOK
 
As indicated in the introduction of this press release, the first driver underlying Moody's decision to change the outlook on the Netherlands' Aaa bond rating to negative is the level of uncertainty about the outlook for the euro area and the impact that this has on the country's susceptibility to event risk. Specifically, the material risk of a Greek exit from the euro area exposes core countries such as the Netherlands to a risk of shock that is not commensurate with a stable outlook on their Aaa ratings. The elevated event risk in turn increases the probability that further contingent liabilities will eventually crystallise, with the Netherlands bearing a significant share of the overall liabilities.
 
The second and interrelated driver of the change in outlook to negative is the increase in contingent liabilities that is associated with even the most benign scenario of a continuation of European leaders' reactive and gradualist approach to policymaking. The likelihood is rising that the strong euro area states will need to commit significant resources in order to deepen banking integration in the euro area and to protect a wider range of euro area sovereigns, including large member states, from market funding stress. As a large, wealthy euro area country, the Netherlands bears a significant share of these contingent liabilities.
The contingent liabilities stem from bilateral loans, the EFSF, the European Central Bank (ECB) via the holdings in the Securities Market Programme (SMP) and the Target 2 balances, and -- once established -- the European Stability Mechanism (ESM).
 
The third factor underpinning this outlook change is that domestic vulnerabilities are being amplified by the stress that is emanating from the euro area. The Dutch growth outlook is relatively weak, both in relation to Aaa-rated peers and to its own track record. In fact, according to the Dutch central bank, the country's growth performance between 2008-14 will be its lowest for any seven-year period since the Second World War. Some of the reasons for this are unrelated to developments in the euro area such as declining real disposable incomes (which are expected to fall by nearly 4% in total in 2012-13), the Netherlands' high degree of household leverage (over 200% of disposable income, though household assets are also substantial) and falling house prices. However, negative developments at the euro area level are amplifying these negative trends, which are in turn contributing to weak confidence and an overall contraction in domestic demand. This dynamic creates additional fiscal headwinds and means that the Dutch government's debt burden will begin to fall later and from a higher level.
 
--RATIONALE FOR NETHERLANDS' UNCHANGED Aaa RATING
 
The Netherlands' Aaa sovereign rating is underpinned by very high levels of economic, institutional and government financial strength.
 
The Netherlands is a large, wealthy and open economy that is highly developed and diversified. Although the growth outlook over the forecast period is quite weak relative to the country's historical experience, the Dutch economy remains highly competitive, a fact that is reflected in the sizeable current account surplus. Moreover, unlike some of its fellow euro area countries, the Netherlands has already pursued substantial labour market reform, which has translated into a highly productive labour force whose participation rate is above the EU average.
 
In view of the country's strong tradition of building consensus on key economic policy changes, Dutch institutions have built a robust and highly transparent institutional framework to facilitate this process.
The country also has a strong tradition of relying on independent institutions at key points in the fiscal policymaking process.
 
The Netherlands also enjoys a broad, long-standing consensus on fiscal discipline. In 1994, the Dutch introduced trend-based budgeting with expenditure ceilings (expressed in real terms) for a government's entire term. Under Dutch fiscal rules, revenue windfalls cannot be used to finance expenditures and, in general, departments need to compensate for any overspending themselves. Within a few days of the collapse in April
2012 of the governing minority coalition over budget negotiations, the outgoing coalition was able to reach agreement with three opposition parties on additional fiscal consolidation measures. The speed with which agreement could be reached illustrates that the consensus in favour of fiscal discipline remains in place.
 
--WHAT COULD MOVE THE RATING DOWN
 
The Netherlands' Aaa rating could potentially be downgraded if Moody's were to conclude that debt metrics are unlikely to stabilise within the next 3-4 years, with the deficit, the overall debt burden, and/or debt-financing costs on a rising trend. This could happen in one of three scenarios, all of which imply lower economic and/or government financial
strength: (1) a combination of significantly slower growth over a multi-year time horizon and reduced political commitment to fiscal consolidation, including discretionary fiscal loosening or a failure to respond to a deteriorating fiscal outlook; (2) the exit of any country from the European monetary union, as such an event is expected to set off a chain of financial-sector shocks and associated liquidity pressures for banks and sovereigns that would entail very high cost for countries such as the Netherlands, and cause contingent liabilities from the euro area to increase; or (3) a sharp rise in debt-refinancing costs following a loss of safe-haven status.
 
--WHAT COULD MOVE THE OUTLOOK BACK TO STABLE
 
Conversely, the rating outlook could return to stable if a combination of less adverse macroeconomic conditions, a more benign outlook for the euro area and deficit reduction measures were to ease medium-term uncertainties with regard to the country's debt trajectory.
 
***
 
MOODY'S CHANGES THE OUTLOOK ON LUXEMBOURG'S Aaa RATING TO NEGATIVE
 
Moody's Investors Service has today changed the outlook on Luxembourg's Aaa rating to negative from stable. The Aaa rating itself remains unchanged.
 
The key drivers of today's action on Luxembourg are:
 
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, including Luxembourg.
 
2.) The rising contingent liabilities that the Luxembourg government will assume as a result of European policymakers' reactive and gradualist policy response, although the country's level of gross indebtedness is markedly lower than that of the other Aaa-rated euro area sovereigns.
 
3.) Concerns about the country's economic resilience in view of its significant reliance on financial services industry for employment, national income, and tax revenue.
 
--RATIONALE FOR NEGATIVE OUTLOOK
 
As indicated in the introduction of this press release, the first driver underlying Moody's decision to change the outlook on Luxembourg's Aaa bond rating to negative is the level of uncertainty about the outlook for the euro area and the impact that this has on the country's susceptibility to event risk. Specifically, the material risk of a Greek exit and the broader impact that such an event would have on euro area members exposes core countries such as Luxembourg to a risk of shock that is not commensurate with a stable outlook on their Aaa ratings. In Luxembourg's case, Moody's particular concern is over the impact that this development could have on the financial services industry, which directly accounts for 25-30% of Luxembourg's GDP. In addition, Luxembourg is exposed to a potential rise in contingent liabilities if additional euro area support is needed for banks and sovereigns in financial distress. In the case of Luxembourg, this concern is mitigated by its relatively low level of sovereign indebtedness.
 
In light of Luxembourg's interdependence with the euro area's real economy and the global financial sector, Moody's has broader concerns about the country's economic resilience. Luxembourg's direct dependence on its financial services industry is substantial, both due to its contribution to government taxes and social security contributions (23% of the total) and to the country's employment (12% of employees). Of course, problems in the sector would inevitably generate second-order impacts on the national economy. While Moody's notes that Luxembourg's economy has a track record of being relatively resilient to shocks or crises, the above factors have prompted Moody's to examine whether this resiliency has gradually weakened.
 
--RATIONALE FOR LUXEMBOURG'S UNCHANGED Aaa RATING
 
Luxembourg's Aaa rating is underpinned by the country's position as one of the wealthiest countries in the world on both a GDP per capita and purchasing parity power basis. The rating also reflects the country's solid track record of economic growth, mainly driven by the financial services industry. In the past, the national authorities have been able to leverage their first-mover advantage in implementing EU directives by improving the business environment, being able to attract a highly skilled labour force and preserving some advantages related to bank secrecy legislation. Although the total assets of the banking sector and financial services' overall impact on the Luxembourg economy are very large, Moody's acknowledges that contingent liabilities emanating from it remain low. The domestic retail banking sector is dominated by three banks (Banque et Caisse d'Epargne de l'Etat, BGL BNP Paribas, BIL) and has assets that equate to just over 200% of GDP. These banks have, in aggregate, maintained strong, double-digit core Tier 1 ratios, thus capping the potential liabilities that could crystallise on the government's balance sheet. The off-shore part of the financial system is much larger and is composed of the investment fund industry (with assets under management that equate to 50x GDP) and the offshore banking operations (with assets that are 20x GDP). Moody's assesses the contagion risk between and within these different segments of Luxembourg's financial industry to be low due to minimal balance sheet linkages between the different segments of the financial sector (excluding intra-group exposures in the off-shore banking system which account for around 40% of the aggregated balance sheet of the system).
 
The Aaa rating is supported by the very high fiscal flexibility, characterised by the low fiscal inertness of the government and its ability to adjust tax rates (especially VAT considering the structure of economy), capital expenditures (4% GDP) and social security parameters.
Luxembourg still exhibits sound fiscal metrics, relative to other Aaa-rated countries, in spite of the fact that the government had to use its balance sheet to support both the economy and the banking sector during the financial crisis, which caused debt levels to increase to a still-modest 18.2% of GDP in 2011 from 7% in 2007. In addition, the government has significant financial buffers in the form of national pension fund assets that are equivalent to 27% of GDP.
 
--WHAT COULD MOVE THE RATING DOWN
 
Luxembourg's Aaa rating could potentially be downgraded if Moody's were to observe a large increase in the government's debt burden. Luxembourg's debt level is still low relative to rating peers, but the country's small size probably means that it is limited in its ability to take on large quantities of additional debt. More broadly, if events in the euro area develop in a way that undermines the resilience of the Luxembourg financial sector or economy, that could also result in a downgrade of the sovereign.
 
--WHAT COULD MOVE THE OUTLOOK BACK TO STABLE
 
Conversely, the rating outlook could return to stable if a benign outlook for the euro area, reduced stress in non-core countries and less adverse macroeconomic conditions in Europe in general were to ease medium-term uncertainties with regard to the country's debt trajectory and economic resilience.
 
***
 
MOODY'S AFFIRMS FINLAND'S Aaa RATING AND STABLE OUTLOOK
 
Moody's has today affirmed the Aaa rating and stable rating outlook on Finland's government bond rating.
 
--RATIONALE FOR AFFIRMATION
 
The key drivers of the rating affirmation are: (1) the Finnish government's net creditor position, with accumulated government pension assets exceeding the government's gross financial liabilities; (2) its fiscally conservative budgetary policies that never deviated from strict compliance with the Maastricht Treaty criteria; (3) the country's relatively healthy and domestically oriented banking system; (4) its diversified export markets, with a comparatively small share of exports (close to 33%) sold to the euro area, indicating a limited exposure to and therefore relative insulation from the euro area in terms of trade; and (5) the government's efforts to reduce its exposure to potential losses on its loans to other euro area countries through collateral agreements.
 
Moody's nonetheless believes that Finland's economy and public finances will continue to be challenged as long as the euro area crisis persists, in particular due to the structural problems facing its key economic sectors.
 
--WHAT COULD MOVE THE RATINGS DOWN
 
Finland's Aaa stable rating could potentially be downgraded if the country were to experience a serious deterioration in public finances over a lengthy period of time that would worsen debt affordability significantly and endanger economic stability. Although Finland is in a better position than its euro area peers to shield itself from any adverse developments in the euro area debt crisis, should its economy and banking system prove less resilient than expected, this could also put downward pressure on the rating.
 
The principal methodology used in these ratings was Sovereign Bond Ratings published in September 2008. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

 

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Mon, 07/23/2012 - 17:01 | 2643724 JackT
JackT's picture

At this point..is there anything left to be said?

Mon, 07/23/2012 - 17:02 | 2643726 Cangaroo.TNT
Cangaroo.TNT's picture

Whatever that may be, it probably ends with "bitchez".

Mon, 07/23/2012 - 18:26 | 2643940 Chris Jusset
Chris Jusset's picture

Wow, Moody's is actually ahead of the curve rather than 3 or 4 months behind.  Usually Moody's waits until a country has completely collapsed and is a smoldering ash-heap before it issues a rating downgrade.

Tue, 07/24/2012 - 06:20 | 2644862 MillionDollarBoner_
MillionDollarBoner_'s picture

Unless, of course, it is simply doing the bidding of the Fed ;o)

Mon, 07/23/2012 - 17:04 | 2643732 surf0766
surf0766's picture

No

Mon, 07/23/2012 - 17:04 | 2643733 agent default
agent default's picture

Yes.  We need to orderly unwind the Euro before it turns into the toxic asset of the millennium.

Mon, 07/23/2012 - 17:09 | 2643745 Rainman
Rainman's picture

John Paulson gives dissolution of euro a coin flip..... he don't do no ratings.

 

http://www.bloomberg.com/news/2012-07-23/john-paulson-said-to-see-50-chance-that-euro-will-fail.html

Mon, 07/23/2012 - 17:12 | 2643747 surf0766
surf0766's picture

Too late

Mon, 07/23/2012 - 18:05 | 2643835 1000pips
1000pips's picture

Ain't gonna happen... It would be like telling the individual US states to create separate currencies-cannot be done.  

China needs the Euro, and Germany must have it to continue exports.  

What must be done is the EU must create a Central Treasury-Now; which involves, as Finland wants-colatoralization of each countries GOLD.  This issue has always been stepped around since the beginning of the Euro creation in the late 90's.  

Now the can cannot be kicked much longer on this Main Flaw of the Euro.  Some EU States will stay broke, some will grow in wealth, Germany was broke when she entered the Euro, so in 14 years she has become wealthy, now she Must pony up to a central treasury-she has no choice! 

This can and must happen, this Moody's downgrade of the top EU countries just made this issue unavoidable-Finally...Euro/Usd to $1.40+ in 365 days...bet the farm on it

Oh, if your gonna vote negative on this, have some balls and respond, we will see just how much currency education you have!

Mon, 07/23/2012 - 19:41 | 2644109 The Monkey
The Monkey's picture

Anything can happen short-term.

That said, I'll take Gary Shilling's longer-term outlook on the Euro.  It will trade at parity before it's all over.  And a weak Euro is probably a good thing for Europe (but, not so good for US equities).

Mon, 07/23/2012 - 19:56 | 2644128 1Inthebeginning
1Inthebeginning's picture

If a cascade of bank failures freezes the credit markets, will countries start to use their own currencies?  Or will they continue using the Euro?

If Europe can't find the growth to pay its bills then it will dissolve the union.  Where is the engine of growth?  Any new technologies?

Maybe if they had a fiscal union they could inflate their currency, but how would that be any better?  Delaying tactic?

Would be pleased with more autonomy in USA states.

I like your input.  Gave you green arrow.

 

Mon, 07/23/2012 - 20:12 | 2644162 Global Hunter
Global Hunter's picture

Thumbs down for 2 reasons, first comparing sovereign nations to States in the USA isn't an accurate analogy or illustrative point (besides why couldn't Montana issue its own currency?  Not likely to happen today but is not outside of the realm of possibility).  Seconly for saying "EU must create a Central Treasury-Now", that's just a stupid idea, give the lunatics running the asylum more powers to fuck up. 

Tue, 07/24/2012 - 00:26 | 2644609 1000pips
1000pips's picture

The comparison to US States is a perfect example-study bank issued US dollars of late 1929 thru 30's. Why do you think they call them EU States.

As far as a your anti-central treasury argument; u should brush up on Soro's view.

Still, glad u had balls enough to post, now go learn.

Tue, 07/24/2012 - 03:42 | 2644785 Ghordius
Ghordius's picture

1000pips, if you really want to make an argument about the USD issuance, you should study that moment in the 30's when the dozen FEDs questioned if they should really cover each other and accept each other's USD. You are mixing up the free-banking era with the moment in history when the FED system transitioned/integrated.

"Why do you think they call them EU States". Wonderful example of how the AngloSphere functions. Since "they" call them EU States, then they are "EU States"? Keep the narrative going, so that the foreign muppets think they understand?

Take the european Council's meetings, for example. The British and US media - and only them, call them Summits. The fact that it's the key meeting for all things EU - in fact, something like the "Senate of the EU", outlining the policies that the Commission has to follow, is just forgotten - in the English speaking media. The EU-moaning press. The "them"-press.

http://en.wikipedia.org/wiki/European_Council

Why? Because it never suited the British establishment to point out to their flock of sheep that the EU has something like a Confederation's setup. Centered on the governments of sovereign countries meeting and brokering deals. It's much more entertaining to talk about "them" in Brussels, moan about their "tyranny" and behave as if London would be mostly powerless.

And this goes all back to the fact that economically, the UK wants to be part of the EU, but politically, it has practically no partners with a similar agenda. Why? Because it mostly does not suit the special interests of the City of London.

"EU States"? Come on, get a bit more accustomed to the facts. WE (the other 26 nations) DON'T WANT A FRIGGING PRESIDENT WITH REAL POWERS AND NO FRIGGING CENTRAL TREASURY. And the City of London can go and stick their demands up the frigging asses of Gog and Magog.

Tue, 07/24/2012 - 05:46 | 2644847 Ghordius
Ghordius's picture

1000pips, I'm not exasperated at you, I'm exasperated at this huge amounts of bollocks that get's in the press. I should have toned down...

btw, I thought I would be quite well versed in all monetary matters - this little thing about the FED in the '30s was new to me, too, when I first read it here on ZH and researched afterward. enlightening.

Mon, 07/23/2012 - 17:34 | 2643798 Sudden Debt
Sudden Debt's picture

oh well... happens to the best of them.... so when the best turn into the worst and the worst are still the worst.... Confusing...

Mon, 07/23/2012 - 17:40 | 2643819 disabledvet
disabledvet's picture

"Why am I holding any debt rated maturity past 5 years when I can get more return AND yield with just cash?"

Mon, 07/23/2012 - 17:44 | 2643831 azzhatter
azzhatter's picture

Paging Herman Von Rumpboy- your house is on fire

Mon, 07/23/2012 - 17:55 | 2643863 noses
noses's picture

Of course – there is one question left: Will Germany continue to be stupid enough to pay for all those bitchez in the south?

Mon, 07/23/2012 - 19:06 | 2644011 BigDeuceLittleToilet
BigDeuceLittleToilet's picture

Bullish.

Mon, 07/23/2012 - 19:17 | 2644033 LMAOLORI
LMAOLORI's picture

 

 

Yes something else to say Moody's sucks I am surprised there were not more law suits over their ratings 

 

Moody's to settle mortgage bond credit ratings lawsuit

 

Warren Buffett Talks His Book While Defending Moody’s from Congress

 

Buffett’s Betrayal

 

SEC investigates role of ratings agencies Moody's and Standard & Poor's ahead of the financial crisis

 

Though I do think these downgrades are warranted they should have come earlier then this

 

 

 

 

Mon, 07/23/2012 - 17:02 | 2643725 Piranha
Piranha's picture

Thank you Moody's

Mon, 07/23/2012 - 17:03 | 2643727 twh99
twh99's picture

Maybe Germany should go back the Deutche Mark?

Mon, 07/23/2012 - 17:56 | 2643867 noses
noses's picture

[x] LIKE

Mon, 07/23/2012 - 22:41 | 2644464 RiverRoad
RiverRoad's picture

I thought EU countries were going to pooh-pooh all the ratings agencies.  Let's see what they do with this.

Mon, 07/23/2012 - 17:03 | 2643728 daily bread
daily bread's picture

yes, BTFD

Mon, 07/23/2012 - 17:04 | 2643730 pleseus
pleseus's picture

There goes Germany, the savior of the Eurozone.  So how long is the Euro going to last?  Keep buying those dips suckers.  Dip hope filled rallies are coming to an end.

Mon, 07/23/2012 - 17:07 | 2643737 sampo
sampo's picture

At the end of the day, We the Finns will pay it all. All you have to do is ask.

Mon, 07/23/2012 - 17:24 | 2643772 magpie
magpie's picture

...just waiting for that headline : "Finland reaches agreement on collateral requirements with Germany"

Mon, 07/23/2012 - 17:44 | 2643828 disabledvet
disabledvet's picture

You mean "Finland exits the EZ."

Mon, 07/23/2012 - 18:15 | 2643843 magpie
magpie's picture

Nah, it's more like Germany gets the Nordic Euro by hook or by crook.

Mon, 07/23/2012 - 17:05 | 2643731 Bogdog
Bogdog's picture

A spoonfull or reality in an ocean of lies.

Mon, 07/23/2012 - 17:05 | 2643735 JohnnyBriefcase
JohnnyBriefcase's picture

Luckily China will...  umm...   bail out...  the world?

 

And... stuff?

Mon, 07/23/2012 - 17:30 | 2643788 agent default
agent default's picture

Who will bail out China?

Mon, 07/23/2012 - 17:39 | 2643815 JohnnyBriefcase
JohnnyBriefcase's picture

Germany!

Mon, 07/23/2012 - 18:13 | 2643912 Reptil
Reptil's picture

Good idea!
In my other job I often use two modulators to influence each other. (each "thinks" it's the master)

This creates a pleasant unstabillity. Unpredictable results the more both are "equal".

Finances is like physics after all.. LOL

Now.. back to boiling frogs. The traditionally right wing VVD party has in their (upcoming) election program, that they're committing to "europe". Everyone in the room was assured it would work. I was partially intoxciated so that's why I didn't murder anyone on the spot.

And we will allllllll go downnnn to-getherrr

 

(Got Gold?)

Mon, 07/23/2012 - 17:06 | 2643736 LongSoupLine
LongSoupLine's picture

Fuck you Moody's you corrupt piece of shit.  We still haven't forgotten who's largely responsible for the original crash...fucktards!

Mon, 07/23/2012 - 17:27 | 2643744 Negro Primero
Negro Primero's picture

Just to remember...short video from Max Keiser (2011)

'Moody's financial vandalism agency (?)'

http://youtu.be/qodE51Tbpq4

...and Peter Schiff 'Moody's Credibility Sinks to Junk Status' http://youtu.be/QJXk8L22ACg
Mon, 07/23/2012 - 17:11 | 2643746 Hype Alert
Hype Alert's picture

I guess you can't stay behind the curve forever.  Oh wait, that would mean pointing it out BEFORE the world already knew.

Mon, 07/23/2012 - 17:14 | 2643751 LeisureSmith
LeisureSmith's picture

Even a blind pig finds an acorn once in a while.

Mon, 07/23/2012 - 18:45 | 2643985 noses
noses's picture

Wasn't it "even a blind pig finds a butcher once in a while" originally?

Mon, 07/23/2012 - 20:02 | 2644140 LeisureSmith
LeisureSmith's picture

All i know is "pigs get slaughtered" so don't be a pig, and don't be piigs if you can help it. Fun fact curtesy of the intertubes, a blind pig may refer to place that sells illegal booze, so be on the lookout if you own a timemachine and want to get hammered.

Mon, 07/23/2012 - 20:39 | 2644225 smiler03
smiler03's picture

Even an acorn can grow in PIIGS shit

Mon, 07/23/2012 - 17:31 | 2643753 JustObserving
JustObserving's picture

How about the US? Uncle Warren told you to upgrade the outlook to positive? When will the Germans realize that they need a few rating agencies of their own? The US refuses to recognize, Dagong, the Chinese rating agency.

Talking about manipulation:

It has taken more than 25 years for me to fully comprehend a conclusion that I never wanted to reach, namely, that there is an organized war against the price of silver that has come to include the US Government. I think the US Government involvement came into being almost accidently, but even if it was an accident of sorts, that does not diminish the serious nature of what must be described as illegal activity at the highest levels. I am conflicted between feelings of sadness and outrage.

http://www.silverseek.com/commentary/war-silver

 

 

Mon, 07/23/2012 - 17:14 | 2643754 q99x2
q99x2's picture

Banksters are paying the Rating Agencies for a controlled implosion and takeover of the sovereign nations of the world.

Its a conspiracy I tell ya.

Mon, 07/23/2012 - 17:16 | 2643757 Lohn Jocke
Lohn Jocke's picture

It's okay. Germany will bail out Luxembourg, Netherlands, and Germany.

Mon, 07/23/2012 - 18:28 | 2643949 Libertarian777
Libertarian777's picture

no no no

you got it wrong.

Spain will bail out its banks.

it's banks will buy Italian government debt

Italians will buy ESM bonds

ESM will bail out Germany, Italy and Spain

 

It's called the 'virtuous circle-jerk', all the central planners of the Eurozone will sit in a big circle and play with each other.

Mon, 07/23/2012 - 17:19 | 2643762 Catullus
Catullus's picture

What about the hard landing in China causing a German export slowdown?  Oh wait. I forgot we have to pretend that a stronger mark would somehow hurt the German economy when the Chinese are paying them in dollars anyway.

Mon, 07/23/2012 - 17:51 | 2643853 johny2
johny2's picture

The hard landing in China would hurt everybody, but mainly the commodity exporters, not the Germany in the first place. But it is completely strange to claim that the super strong mark would not crimp the Germanys exports. 

Mon, 07/23/2012 - 17:20 | 2643763 kraschenbern
kraschenbern's picture

Are any unencumbered properties left?  I'd like a clear title, and a sovereign willing and able to defend the idea of private property.

Mon, 07/23/2012 - 17:31 | 2643789 magpie
magpie's picture

I've heard of untungstonified gold in some English vault.

Mon, 07/23/2012 - 19:06 | 2644010 Haager
Haager's picture

I know of lots of gold in spanish vessels.

Mon, 07/23/2012 - 19:12 | 2644026 magpie
magpie's picture

Ah but i guess one could call that encumbered by the laws of the sea, or question if claimants are legal successors to the ship, and not todays Spain.

Mon, 07/23/2012 - 17:31 | 2643792 Buzz Fuzzel
Buzz Fuzzel's picture

Rating services?  You have to be kidding.

Mon, 07/23/2012 - 17:32 | 2643793 Tsar Pointless
Tsar Pointless's picture

Will this matter, when the S&P crawls back toward or over 1400 sometime in August?

I say "No", but my opinions are - as always - pointless.

Mon, 07/23/2012 - 19:05 | 2643851 magpie
magpie's picture

Who is Guy Fawkes ? I know i ain't.

I knew no one would have tried so hard to keep it a secret if it only affected Mr. & Mrs. Sixpack.

http://www.youtube.com/watch?v=mLXQltR7vUQ&feature=related

Mon, 07/23/2012 - 17:36 | 2643806 Sudden Debt
Sudden Debt's picture

I just rated Moodys of the island!

Mon, 07/23/2012 - 17:46 | 2643836 Piranhanoia
Piranhanoia's picture

Anyone heard of the people of any country in the world being bailed out yet?

Just the banks.  Reward the crime,  more taxes to the peons.

Mon, 07/23/2012 - 17:49 | 2643844 Conman
Conman's picture

Hmm my brain says "hey you dummy, everytime a EU soverign gets a downgrade, markets rally, btfd dummy" . But my fingers just can't click place order. Dumb brain.

Mon, 07/23/2012 - 17:57 | 2643870 max2205
max2205's picture

I am all in when they rate them at B

Mon, 07/23/2012 - 18:00 | 2643879 Cangoroo
Cangoroo's picture

"the exit of any country from the European monetary union, as such an event is expected to set off a chain of financial-sector shocks and associated liquidity pressures for banks and sovereigns"

 

So Greece will stay and no Grexit.

Mon, 07/23/2012 - 18:05 | 2643890 surf0766
surf0766's picture

Everything about greece has been priced in. Staying , leaving, changing its' name, increasing vacation time to 40 hours per week etc.

Mon, 07/23/2012 - 18:10 | 2643904 Cangoroo
Cangoroo's picture

Nobody will risk a downgrade. They will stay, but correct, it doesn't matter.

Mon, 07/23/2012 - 18:23 | 2643932 bugs_
bugs_'s picture

Deep Shah

Mon, 07/23/2012 - 19:08 | 2644014 rosesryellow
rosesryellow's picture

***Breaking News***

Moody's is about as fair and honest as a couple of Heavyweight boxing judges that have been paid off by the Mafia!

 

The only news here is that the powers that Be/Were are closing in on their attempts to take down all of Europe.  So, for this, thanks for the article.

 

Mon, 07/23/2012 - 19:27 | 2644069 fuu
Mon, 07/23/2012 - 20:13 | 2644164 Hulk
Hulk's picture

The Market cares and the Market is speaking loudly...

Mon, 07/23/2012 - 20:23 | 2644183 Arnold Ziffel
Arnold Ziffel's picture

<<In a first for Moody's, the rating agency, traditionally about a month after Egan Jones...and three months after ZeroHedge....>>

 

There, fixed.

Tue, 07/24/2012 - 01:51 | 2644717 Joe A
Joe A's picture

Jut like BBA was fixing LIBOR and JP Morgan was fixing CDS, the rating agencies are fixing the ratings. What do they have in common? They are all part of the Anglo-American financial system. An economic and financial war is going on. For sure there are big problems in Europe by why do the US and UK get relatively off the hook while they have equal or even worse economical and financial problems?

Tue, 07/24/2012 - 06:04 | 2644856 TomFord9
TomFord9's picture

The Eurozone cannot possibly extricate itself from the mess it is after ceding monetary sovereignty to useless institutions, whereas the UK and US can (but won't).

Tue, 07/24/2012 - 06:22 | 2644865 Joe A
Joe A's picture

You mean the US can recede itself from the Fed? Good luck.

Tue, 07/24/2012 - 07:09 | 2644925 shullbitter
shullbitter's picture

moodys is bought and paid for by the same interests why should we listen to anything they have to say

they are completely removed from reality

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