Moody’s and the Markets Respond to the EU Decisions

Moody’s said yesterday that they still intend to revisit the ratings of all European Union countries during early 2012, given “the continued absence of decisive policy measures.”

Also the ratings agency placed eight Spanish banks and two holding companies on review for possible downgrades.

Yesterday, rating agency Fitch stated the inability by European Union leaders to devise a “comprehensive” fix to the region’s debt crisis had intensified pressure on debt ratings of euro-area nations. Fitch continued their statement saying that the euro-zone crisis could be expected to linger into 2012

Moody’s said the crisis remains in a “critical and volatile stage, with sovereign and bank debt markets prone to acute dislocation which policy makers will find increasingly hard to contain.”

Fitch said that a comprehensive solution to the sovereign debt crisis in the euro zone “is not on offer” and that European Union officials are responding through incremental measures.

The view is that last week’s EU summit took a “gradualist” approach that “means the crisis will continue at varying levels of intensity throughout 2012 and probably beyond, until the region is able to sustain a broad economic recovery.” The ratings company projects a “significant” economic downturn across the region.

They further stated “Our forecast of 0.4% euro-zone GDP growth next year and 1.2% in 2013 would be significantly higher if there was a comprehensive solution to the crisis,” The agency said it still believes that the European Central Bank “is the only truly credible ‘firewall’ against liquidity and even solvency crises in Europe.”

Many economists, financiers, bankers and politicians are demanding that the EU reconvene the summit to discuss how to deal with the immediate problems. The new fiscal pact and treaty modifications will not be approved, if they are, until spring 2012, and they will most likely have modification and changes.

The outcome was supported by the ECB and the IMF, but they also have their hands tied, as they need to understand how Europe is going to deal with the immediate crisis and no direction has been provided.

On Monday investors showed their dismay, selling off European banks and European exports shares as well as shares of companies that base their income on sales to the eurozone nation.

 

Asian shares continued to plummet on this morning, after having time to review the comments by Fitch and Moody’s. Standard and Poor’s also continued their advisement from last week that they will be reviewing sovereign debt for a downgrade after the first of the year and have placed them on negative watch.

Japan’s Nikkei 225 (NKY) decreased 1.4 percent, while South Korea’s Kospi Index fell 1.7 percent. Australia’s S&P/ASX 200 index dropped 1.5 percent. Hong Kong’s Hang Seng Index slipped 1.2 percent. The Shanghai Composite Index lost 1.1 percent.

The euro continues to drop as recession looms. The euro fell to its lowest level in two weeks — $1.3177 — before recovering slightly to $1.3188 by late trading