Moody's Downgrades Belgium

Belgium saw its credit rating cut Friday by two notches, as Moody’s said that the debt crisis in the euro zone was increasing risk for all countries carrying a heavy public debt burden. Gloom over the action carried over into Monday morning trading, when Belgian bonds underperformed as a result of the downgrade.

Reuters reported that Belgium’s local- and foreign-currency government bond ratings fell to Aa3 from Aa1. Even the new rating has a negative outlook, meaning that another downgrade is possible within a couple of years. The ratings agency said that prospects for Belgium’s economic growth and its banking system, especially thanks to contingent liabilities coming from its bailout of the Dexia group, also factored into its action.

In a statement, Moody’s said, “The fragility of the sovereign debt markets (in the euro zone) is increasingly entrenched and unlikely to be reversed in the near future. It translates into heightened potential for funding stress for euro area countries with high public debt burdens and refinancing needs like Belgium.”