Moody’s Investor Service and Fitch Ratings each said yesterday they had awarded the top “AAA” rating to Europe’s share of US$1 trillion backstop fund set up to help struggling eurozone economies.
Moody’s said its provisional rating for the EU fund, which has yet to be tapped but which economists suggest that Ireland may already be eyeing, was based on a series of factors propping it up.
These ranged from the “irrevocable and unconditional guarantees by the participating states” to the European Financial Stability Fund’s “cash reserve and the loan-specific cash buffer” and the “creditworthiness of the participating AAA eurozone member states and their firm commitment” to the fund.
Fitch Ratings spelled out that 440 billion euros (US$556 billion) of “unconditional and irrevocable” sovereign guarantees, issued under English law, initially announced in May would fall to 428 billion euros as Greece, which has a BBB-minus rating, had “stepped out” as a guarantor.
Matched funding that could be disbursed between now and the summer of 2013 in the event of a eurozone state other than Greece requiring assistance would come from the IMF and borrowings by the European Commission.
Brussels warned this month of “lingering tensions in sovereign-debt markets” at home as weighing down on economic recovery as Europe braces itself for the impact of a “soft patch” in global demand.
However, Fitch insisted that its rating would remain “robust to the potential failure of one or more borrowers to make scheduled repayments” and also that it would take more than the “unlikely event that non-‘AAA’ rated [EU] guarantors also fail to meet their share” for its rating to be cut.