Moody's lowers outlook on eurozone rescue fund

Just a day after changing its 'Aaa' rating outlook on Germany, Europe's largest economy to negative from stable, global rating agency Moody's Investors Service yesterday revised its outlook on the provisional '(P)Aaa' long-tem rating of the European Financial Stability Facility (EFSF) to negative from stable.

Moody's said that the action follows the assignment of a negative outlook on the 'Aaa' ratings of three of the EFSF's guarantors: Germany, Netherlands and Luxembourg. These countries have significant stakes in the EFSF's guarantor pool with Germany having a share of 29.1 per cent, the Netherlands 6.1 per cent and Luxembourg 0.3 per cent.

Moody's warned that recent outlook changes imply an increased likelihood that the euozone's emergency fund might be downgraded over the next 12 to 18 months. It said the EFSF's rating is sensitive to changes in the ratings of 'Aaa' countries with large contribution keys i.e. Germany, France and the Netherlands.

Earlier this week, the rating agency changed its sovereign 'Aaa' rating outlook on Germany, to negative from stable on concerns over a potential Greek exit from the eurozone and an increased burden on more highly rated members.

Along with Germany, Moody's also revised the 'Aaa' rating outlooks of the Netherlands and Luxembourg to negative from stable.

However, the rating agency affirmed Finland's 'Aaa' rating and stable outlook, making it the only eurozone nation to remain in the highest category, thanks to the country's unique credit profile.