Ratings agency Moody’s on Monday warned that it might cut the “AAA” ratings of France, the UK and Austria, as it downgraded six other European nations — including Italy, Spain and Portugal — citing growing risks from Europe’s debt crisis.
Moving less aggressively than rival agency Standard & Poor’s last month, but putting the UK rating in jeopardy for the first time, Moody’s said it was worried about Europe’s ability to undertake the kind of reforms needed to address the crisis and the amount of funds available to fight it.
It also said the region’s weak economy could undermine austerity drives by governments to fix their finances.
The US ratings agency said it changed the outlooks for the -ratings of France, the UK and Austria to negative because of “a number of specific credit pressures that would exacerbate the susceptibility of these sovereigns’ balance sheets.”
Germany’s top-tier rating was described as “appropriate” by Moody’s and it affirmed the “AAA” rating on the eurozone’s bailout fund — the European Financial Stability Fund.
Moody’s, which said late last year it was reconsidering its European ratings, cut by one notch the ratings of Italy, Portugal, Slovakia, Slovenia and Malta and downgraded Spain by two notches.
Moody’s said the scope of the downgrades was limited because of “the European authorities’ commitment to preserving the monetary union and implementing whatever reforms are needed to restore -market confidence.”
The announcement came a day after the Greek parliament approved a deep new round of budget cuts in the hope of securing new bailout funds and avoiding a chaotic default next month.
The rating outlooks of the nine countries affected by Moody’s action was set to negative, “given the continuing uncertainty over financing conditions over the next few quarters and its corresponding impact on creditworthiness,” Moody’s said.
British Chancellor of the Exchequer George Osborne responded by saying the country must keep its promise to slash its large budget deficit.
“This is proof that, in the current global situation, Britain cannot waver from dealing with its debts,” Osborne said. “This is a -reality check for anyone who thinks Britain can duck confronting its debts.”
The UK government has come under increasing pressure to soften its austerity measures to give a stalling economy room to breathe.
The French government said it would press ahead with its policies to improve competitiveness and growth while reducing the government deficit.
“The government is determined to press ahead with its actions to boost growth and competitiveness, notably the reform of the financing of welfare, of employment and the reduction of public deficits,” French Finance Minister Francois Baroin said in a statement.
Moody’s move follows one by Standard & Poor’s last month, when France and Austria lost their “AAA” status, while Italy, Spain, Portugal, Cyprus, Malta, Slovakia and Slovenia were downgraded. S&P also cut the European bailout fund by one notch.
Last month, ratings agency Fitch also downgraded the sovereign credit ratings of Belgium, Cyprus, Italy, Slovenia and Spain, indicating there was a one-in-two chance of further cuts in the next two years.
Meanwhile, S&P on Monday lowered the credit rating of 15 Spanish banks, while Fitch lowered the credit rating of Spain’s four largest banks.