Moody’s held Austria’s top sovereign rating with a stable outlook on Friday but warned the debt crisis posed a credit risk for it and most eurozone states, putting pressure on the region’s policymakers to take action.
“The longer the sovereign and bank funding markets remain volatile, the more likely it is that further credit pressures will develop for most euro area countries, including Aaa-rated (ones),” the rating agency said early on Friday.
The statement from Moody’s, which had said earlier this month it would review the ratings of all 27 EU states in the first quarter of next year, echoed the concerns of its peers.
Standard & Poor’s warned on December 6 that the sovereign debt crisis could prompt it to downgrade the ratings of 15 eurozone members, including Germany, France and Austria.
On December 16, Fitch put six eurozone economies including Italy and Spain on watch for potential near-term downgrades, saying it thought a comprehensive solution to the eurozone’s debt crisis was beyond reach.
Policymakers struggling to reach a consensus on tackling the debt crisis are focused on a plan for tighter eurozone fiscal rules, which they hope will prevent the problems from worsening.
But the market response to a December 9 EU summit at which that plan was thrashed out has been cool, due also to the reluctance of the European Central Bank to play a more interventionist role.
Moody’s said on Friday that, while Austria’s Aaa ratings were still stable, that outlook increasingly depended on a resolution of the eurozone crisis “which has begun to negatively affect core euro area member states like Austria.”
The rating agency also highlighted the risk posed by Austria’s relatively large banking sector and its exposure to central and eastern Europe.
Markets took the Austria news in their stride.
Spreads for 10-year Austrian government debt over benchmark German Bunds were little changed at about 110 basis points by 0900 GMT.
Moody’s said a substantial and prolonged deterioration of Austria’s ability to handle its debt would weigh on the top rating.
“A scenario with a series of sovereign defaults and exits from the eurozone would also put pressure on Austria’s rating, as it would for other eurozone Aaa-rated sovereigns,” it said.