UK's triple-A rating under threat
Moody's says European debt crisis is undermining austerity measures
By CFOWorld.co.uk | CFO UK | Published 09:43, 14 February 12
The UK's triple-A rating could be in danger because of the growing risks from Europe's debt crisis, rating agency Moody's warned on Tuesday.
It changed the ratings outlook to negative because of "a number of specific credit pressures that would exacerbate the susceptibility of these sovereigns' balance sheets".
The agency said it had concerns over Europe's ability to undertake the reforms needed to address the crisis. The mounting crisis could undermine austerity drives across Europe, he said.
France and Austria were also warned about their triple-A status, while Moody's downgraded Italy, Portugal, Malta, Slovakia and Slovenia, with Spain downgraded by two notches. This follows similar moves by Standard & Poors last year. Germany's triple-A rating was described as "appropriate".
The euro and sterling fell after the announcement, with pound falling 0.4 percent to $1.5703 and the single currency dipping 0.3 percent to $1.3154. European and U.S. equity index futures were also lower.
Moody's said the scope of the downgrades was limited due to "the European authorities' commitment to preserving the monetary union and implementing whatever reforms are needed to restore market confidence".
The announcement came a day after Greece's parliament approved a deep new round of budget cuts in the hope of securing new bailout funds and avoiding a chaotic default in March.
Chancellor George Osborne (pictured) said this reaffirmed the government's efforts to reduce the deficit. "This is proof that, in the current global situation, Britain cannot waver from dealing with its debts. This is a reality check for anyone who thinks Britain can duck confronting its debts."
"This is yet another organisation - in this case a credit ratings agency - warning Britain that if we spend or borrow too much we're going to lose our credit rating," he told the BBC Radio 4 Today programme.
The French government said it would press ahead with its policies to improve competitiveness and growth while reducing the government deficit.
"The government is determined to press ahead with its actions to boost growth and competitiveness, notably the reform of the financing of welfare, of employment and the reduction of public deficits," finance minister Francois Baroin said in a statement.
The precarious state of European sovereign finances was underlined on Monday, when the head if China's sovereign wealth fund brushed aside an appeal from German chancellor Angela Merkel to buy European government debt, saying such bonds were "difficult" for long-term investors.
A retreat from European government debt has already been boosting relatively high-yielding Australian and New Zealand debt, as cashed-up Asian sovereign wealth funds and other major bond investors look for safe havens to diversify their holdings.
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