Europe Debt Crisis

Moody’s ratings agency has downgraded seven of Germany’s banks today citing risks from the Euro crisis as the reason behind its decision. The region is still suffering from depression relating to certain countries’ sovereign and private debt issues. The problem looks without solution and so stable financial institutions proximal to the crisis are suffering as a result.

The biggest among the banks downgraded was Commerzbank AG (ETR:CBR). That institution is Germany’s second biggest and so has the most to lose from the downgrade. The bank garners almost 30 percent of its income from its business in China. That won’t be affected by this downgrade. The firm was downgraded from A2 to A3 by Moody’s.

Germany’s Public Sector “Landesbanken”, or regional banks, were not immune from the downgrade. Three of them were demoted in Moody’s ranking system along with the private sector banks. Those downgraded were the regional banks of Bade-Wurttemburg, Norddeutsche and Hessen-Thuringen

Two of the other downgrades involved DZ Bank and Deka Bank. The remaining move was made on Italian Bank Unicredit’s German business. It was moved from A2 to A3 on Moody’s rating system. The firm’s Italian business was downgraded by Moody’s earlier this month.

On May 15 Moody’s decided to downgrade its ratings on 26 Italian banks. The ratings agency is taking the European debt crisis seriously, and clearly the longer it goes on the more vulnerable the stable institutions become.

Moody’s said it was considering putting a negative outlook on Austria’s AAA sovereign debt rating. The country has not experienced the problems of the PIIGS or even France but has become vulnerable by prolonged exposure.

The European debt crisis has been a special type of beast in the slowness of its action. Throughout the course of its history it has seeped slowly throughout the Eurozone and though the bad loans may now be traced and tracked there remain problems of association.

Germany’s biggest bank was left out of the downgrades and its second biggest has dropped only to a rating of A3. This is not a disaster and likely won’t cause a run on the banks or a jump away from the stock. It also should not cause a downgrade of Germany as a whole.

If the crisis continues as it has in the last years there is no telling how much change gradual changes like these might bring to Europe. The continent is economically exhausted by austerity or by paying for austerity. Without a comprehensive solution there is little to do but sit and watch the slow degradation.