Top-rated Germany, Europe’s paymaster, faced the prospect yesterday of a damaging downgrade as Moody’s warned that problems in Spain and Italy made the eurozone debt crisis even more dangerous.
Cutting Germany’s rating outlook to “negative” from “stable,” meaning it could be downgraded, Moody’s said no country was immune from a crisis which has already forced Greece, Ireland and Portugal into massive bailouts.
Germany, and fellow “AAA”-rated countries the Netherlands and Luxembourg, faced risks from Greece leaving the eurozone and from the need to stump up cash for potential debt rescues for Spain and Italy, it said.
Photo: Reuters
“The continued deterioration in Spain and Italy’s macroeconomic and funding environment has increased the risk that they will require some kind of external support,” it added.
Germany, seen as absolutely crucial to resolving the crisis, immediately shot back, insisting that it was “itself in a solid economic and financial situation” and that it remained the “eurozone’s anchor of stability.”
The German Ministry of Finance said it had “taken note of Moody’s opinion,” arguing that the ratings agency had put the focus “on short-term risks, while stability prospects in the long term are not mentioned.”
“The eurozone has initiated a series of measures which should lead to the durable stabilizing of the zone,” the ministry added.
Spain’s borrowing costs hit levels well above 7 percent on Monday, prompting sharp falls in Europe’s main stock markets although they leveled off in early trading yesterday.
The crisis in Spain were to be thrashed out in a meeting last night between German Finance Minister Wolfgang Schaeuble and Spanish Economy Minister Luis de Guindos in Berlin.
The German economy has up to now proved largely resilient to the crisis, although it is now showing signs of a slowdown, with the eurozone looking to Berlin to take the lead in resolving the impasse.
Jean-Claude Juncker, head of the eurozone finance ministers group, yesterday stated his “strong commitment” to the eurozone’s stability.
Germany, The Netherlands and Luxembourg have “sound fundamentals,” Juncker said.
“Against this background, we reiterate our strong commitment to ensure the stability of the euro area as a whole,” he added.
Christian Schulz at Berenberg Bank said the Moody’s action “exposes the limits of Europe’s current strategy of conditional sovereign bailouts,” calling for the European Central Bank to intervene decisively.
“Ironically, Europe does not really have a debt problem,” Schulz said, noting that overall the US and Japan were in a worse position.
“Europe has a confidence crisis, largely because of the reluctance of its central bank to intervene forcefully in market panics. Moody’s rating action may bring the end to this reluctance a little closer,” he said.
Moody’s, one of the top three ratings agencies, cited for its decision the likely deepening of the debt crisis, which took a further turn downwrds on Monday as Spanish borrowing costs soared and Greece’s second bailout appeared to be in deep trouble.
“The level of uncertainty about the outlook for the euro area, and the potential impact of plausible scenarios on member states, are no longer consistent with stable outlooks,” Moody’s said.
The agency also highlighted the slow policy response to the crisis, noting a “reactive and gradualist policy response” from leaders as a cause of concern.
German Chancellor Angela Merkel has been repeatedly criticized for stressing austerity above growth and the need for the eurozone to put its fiscal house in order first before any aid can be agreed.
Germany said it would “do all it can with its partners to overcome the European debt crisis as quickly as possible.”
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
Apple Inc has been developing a homegrown chip to run artificial intelligence (AI) tools in data centers, although it is unclear if the semiconductor would ever be deployed, the Wall Street Journal reported on Monday. The effort would build on Apple’s previous efforts to make in-house chips, which run in its iPhones, Macs and other devices, according to the Journal, which cited unidentified people familiar with the matter. The server project is code-named ACDC (Apple Chips in Data Center) within the company, aiming to utilize Apple’s expertise in chip design for the company’s server infrastructure, the newspaper said. While this initiative has been
GlobalWafers Co (環球晶圓), the world’s No. 3 silicon wafer supplier, yesterday said that revenue would rise moderately in the second half of this year, driven primarily by robust demand for advanced wafers used in high-bandwidth memory (HBM) chips, a key component of artificial intelligence (AI) technology. “The first quarter is the lowest point of this cycle. The second half will be better than the first for the whole semiconductor industry and for GlobalWafers,” chairwoman Doris Hsu (徐秀蘭) said during an online investors’ conference. “HBM would definitely be the key growth driver in the second half,” Hsu said. “That is our big hope
The consumer price index (CPI) last month eased to 1.95 percent, below the central bank’s 2 percent target, as food and entertainment cost increases decelerated, helped by stable egg prices, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday. The slowdown bucked predictions by policymakers and academics that inflationary pressures would build up following double-digit electricity rate hikes on April 1. “The latest CPI data came after the cost of eating out and rent grew moderately amid mixed international raw material prices,” DGBAS official Tsao Chih-hung (曹志弘) told a news conference in Taipei. The central bank in March raised interest rates by