Moody's lowers ratings of six German states

Six German states have had their ratings changed from stable to negative by Moody's Investor Service, which cited the close fiscal ties between the regions and the federal government, whose outlook was downgraded two days ago.

The firm said on its website that six of Germany's 16 states, or ''Laender'' in German -- Bavaria, Baden-Wuerttemberg, Berlin, Brandenburg, Saxony-Anhalt and North Rhine-Westphalia -- had ''extremely strong financial and operational linkages'' with the federal government. The ''negative outlooks on German Laender mirror the negative outlook on Germany's sovereign rating.''

According to Moody's the factors influencing its decision were Germany's debt equalisation system that transferred revenue from richer to poorer states and the size of the regions' accumulated debt.

The German capital, Berlin which is also a state, is not "presently' anticipating higher costs in selling bonds as a result of Moody's decision, according to the city's finance senator, Ulrich Nussbaum. He made comments to the effect in an interview in the Tagesspiegel newspaper yesterday. The city's bonds are currently rated at Aa1 by Moody's.

Euro-area bonds were down after Moody's lowered the outlook to negative on 23 July for the top Aaa credit ratings of Germany, the Netherlands and Luxembourg, citing ''rising uncertainty'' over Europe's debt crisis. The agency allowed Finland as the only country in the 17-nation euro region to retain its stable outlook for its top ranking.

Meanwhile the economies of Europe continue to weaken, with Britain reporting on yesterday that its second recession in three years had deepened and as several other reports showed business conditions were worsening in Germany.