Despite hours of negotiations at a summit meeting last week that resulted in an agreement by 26 of the 27 European Union countries for closer financial ties, Moody's Investors Service was not impressed. On Monday, the ratings agency said that it still planned reviews of all EU sovereign debt in the first quarter of 2012.
Reuters reported that the ratings agency was unmoved by the agreement, which it said provided few new opportunities to resolve the eurozone's ongoing debt crisis. The agreement, reached Friday by all EU countries but Britain, provides for tighter budget rules for the eurozone, and also for a fund of up to 200 billion euros ($267 billion) from eurozone and other states to be furnished in bilateral loans to the International Monetary Fund to assist in working out the debt crisis.
In its weekly credit report, Moody's said, "In substance, however, the communiqué offers few new measures, and does not change our view that risks to the cohesion of the euro area continue to rise. As we announced in November, unless credit market conditions stabilize in the near future, our ratings of all EU sovereigns will need to be revisited. The communiqué [regarding the agreement] does not change that view, and we continue to expect to complete such a repositioning during the first quarter of 2012."
Moody's also added that the communiqué demonstrates the significant level of tension between the euro area leaders who see the necessity of increasing support for financially weaker nations in the region, and the strength of the opposition to doing so from countries with stronger balance sheets.
The report also said, "Amid the increasing pressure on euro area authorities to act quickly to restore credit market confidence, the constraints they face are also rising. The longer that remains the case, the greater the risk of adverse economic conditions that would add to the already sizeable challenges facing the authorities' coordination and debt reduction efforts."