Ratings warning catches 'star pupil' Germany off guard

6th December 2011, Comments 0 comments

German officials reacted with disbelief on Tuesday to the threat that its gold standard AAA rating could be downgraded, with one top politician saying it was a bid to take the heat off Washington.

In a surprise announcement late on Monday, ratings agency Standard and Poor's threatened to slash the top ratings of six eurozone countries and nine others, sending European markets tumbling two days ahead of a make-or-break EU summit.

Chancellor Angela Merkel largely shrugged off the announcement, saying that what the ratings agency did was its own responsibility and that she was focused on stabilising the euro, which would be a "lengthy process."

But Rainer Bruederle, a former economy minister and a top politician in Merkel's junior coalition party, the FDP, accused S&P of attacking the eurozone.

"I am no fan of conspiracy theories. But sometimes it is hard to dismiss the impression that some American ratings agencies and fund managers are working against the eurozone," he told business daily Handelsblatt.

Michael Fuchs, deputy parliamentary head of Merkel's centre-right Christian Democratic Union (CDU), said: "I assume that there is a political calculation behind this decision from S&P."

"The debt in the United States is bigger than the whole eurozone put together," added Fuchs in comments to the online edition of the Die Welt daily.

Meanwhile, the head of the eurozone finance ministers, Jean-Claude Juncker, whose country Luxembourg also found its AAA status threatened, slammed the decision as "completely over the top and also unfair" on German radio.

"After the very substantial efforts in the eurozone in recent days to get the debt crisis under control... this warning comes as crushing blow," he said.

"We are on the way to solving the debt crisis. We're consolidating, we're reforming and we're also reforming the way Europe is governed," Juncker insisted.

"It is very surprising to me that this falls out of the sky on the eve of the European summit. It can't be a coincidence ... We should not give the ratings agencies more credit than they deserve," he said.

Another top CDU politician, Michael Meister, demanded that the EU clip the wings of the ratings agencies, seen in some quarters as contributing to the crisis.

"The European Commission should finally break the monopoly of the ratings agencies. I've called for this several times," Meister told the online edition of business daily Handelsblatt.

The US-based ratings agency had warned that if the results of a do-or-die EU summit on Thursday or Friday were not seen as robust enough, "we believe market confidence could take another, possibly steep, drop downwards."

Markets in Germany were already pulled down by the announcement, with the DAX stockmarket down around 1.4 percent on the open, following Asian stocks lower.

The Sueddeutsche Zeitung daily said: "Even the star pupils are no longer spared." Germany's AAA rating has been seen as untouchable, as the main bulwark against the sovereign debt crisis spreading through the eurozone.

"This is big, relatively unexpected news, and given the current market sensitivity and poor liquidity, this could have an impact in the near and medium term on all these issuers," noted analysts at Barclays Capital.

Economists at Germany's second-biggest bank Commerzbank said it made no sense to criticise S&P and that its warnings were justified.

"As if it makes any sense to criticise the melody of the fire alarm in the event of a fire. All these events are warning signals that Bunds might lose their safe haven status," they said, referring to German bonds.

And not all analysts in Germany were critical of the ratings agency.

In a research note entitled "Say Thank You To S&P," Holger Schmieding, chief economist at Berenberg Bank, said the downgrade threat "highlights the vicious circle into which the Eurozone has pushed itself."

And Finance Minister Wolfgang Schaeuble said it was the "best incentive possible" for the leaders as they headed into the crucial summit.

© 2011 AFP

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