Moody's downgrades euro zone rescue funds

Credit ratings agency Moody's has downgraded euro zone rescue funds ESM and EFSF to Aa1 from Aaa after it downgraded France earlier in November, the agency said yesterday.

Moody's said the action against ESM and the EFSF, which aims to stabilise the euro zone with the provision of financial assistance to euro area member states in difficulty, was driven by the high correlation in credit risk among the rescue funds and their largest financial supporters.

The rating agency downgraded France to Aaa from its prized triple-A badge this month, citing an uncertain fiscal outlook and deteriorating economy.

"Moody's view that there is a high correlation in credit risk among the entities' supporters is consistent with the evolution to date of the euro area debt crisis and the close institutional, economic and financial linkages among the major euro area sovereigns," Moody's said.

The agency said the new credit rating carried a negative outlook.

EFSF and ESM said in a statement yesterday that while they took note of Moody's decision they did not agree with it.