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Merkel in Berlin. (Reuters)
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Frankfurt, July 24: Germany’s stellar credit rating has been thrown into doubt because of the cost of holding together the euro zone, potentially making it more difficult for Chancellor Angela Merkel to muster political support to aid Greece and Spain.
Moody’s Investors Service said late yesterday that it was changing the outlook on Germany, as well as on the Netherlands and Luxembourg, to “negative”, citing what it said was an increased risk that those countries will have to bear the cost of propping up Spain and Italy.
That helped push up borrowing costs today for both Germany and Spain ahead of talks late in the day between the finance ministers of both countries in Berlin.
While Germany’s bond yields remain near record lows, Spain’s have reached levels that are considered unsustainable for long, raising fears that it will have to ask for aid that its European partners cannot afford.
Spanish leaders have pleaded with the European Central Bank to intervene in the bond market to take off some of the pressure. But the ECB said yesterday it did not buy any government bonds last week, disappointing hopes it might reactivate a dormant debt-purchasing programme.
The Spanish government could also try to persuade its euro zone partners to allow the bloc’s bailout fund to buy up Spanish debt, but that would also mean accepting the stigma of more intrusive “conditionality”.
“This instrument can be used on the request of a member state and there has been no request from a member state to use it,” a European Commission spokesman, Antoine Columbani, told reporters in Brussels when asked whether such a move was under consideration.
In changing its outlook for Germany, the credit rating agency also cited what it said was a greater danger that Greece will leave the euro and “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”.
The change is less drastic than a ratings downgrade, limiting its effect on the three countries’ borrowing costs. Even with the upward bump today, German bond yields remained around 1.24 per cent.
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