Germany’s Credit Rating Cut By Egan Jones

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Egan Jones, an independent rating agency, downgraded Germany’s sovereign debt rating from A+ to A. The rating agency said that the outlook of the country is negative.

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In 2011, Egan Jones was the first agency to lower the credit rating of the United States from AAA to AA+ because of its high level of debt and difficulty in implementing significant spending cuts.

Pertaining to Germany’s downgrade, Egan Jones said, “Angela Merkel continues to resist calls for EU bonds (shared liabs), money printing, and is pushing for fiscal controls, and the seniority of bailout funding. Germany is likely to be outvoted by other ECB Members and therefore will have greater prospective exposure.”  The rating agency also said that it will monitor the progress of the European Banking Union closely.

Egan Jones used IMF’s data, which is greater than the Eurostat data, in its decision to downgrade Germany’s sovereign debt rating.

Majority of the stock markets in Europe had been experiencing losses due to global growth concerns for four consecutive days on Wednesday, and there had been speculations of a sovereign downgrade prior to the decision of Egan Jones to downgrade Germany’s rating.  The speculations brought negative impacts to European stocks particularly German stocks. The DAX 30 Index lost 1.9 percent to 7,532.86.

Société Générale senior currency strategist, Sebastien Galy commented, “It took only some speculation of a German downgrade to send the DAX plunging sharply lower, before it partially recovered. The sensitivity of different markets to negative surprises seems to have risen sharply recently, particularly in Europe and the broad EM spectrum. It suggests that the period of consolidation is continuing.”

In a related report, Germany rejected reports that it is delaying the European Banking Union. According to Martin Kotthaus, spokesperson for Germany’s Ministry of Finance, “We are not suddenly asking for a change in the EU treaty and I categorically reject the assertion that we are putting the brakes on the banking union.”

Kotthaus identified the important steps taken by the EU in setting up a  joint supervisor for the largest banks within the European central bank. He emphasized that Germany has been very constructive in terms of drafting joint rules to resolve the issues regarding failing banks or deposit guarantees. He pointed out that a solid base in the EU treaties is necessary for new institutions and a euro zone wide deposit guarantee system.

Kotthaus said, “This is nothing new, finance ministers in Dublin all agreed that for such a far-reaching step there needs to be a treaty change. But this has nothing to do with us being constructive and dynamic on joint supervision and the other steps of banking union.”

On the other hand, a source from the EU commented that a banking resolution can be done without a treaty change according to the legal service of the EU council.

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