Fitch has said that the euro zone deal is beyond reach

Fitch has said that the euro zone deal is beyond reach

It reaffirmed France’s top-notch triple-A rating but even here said the outlook was now negative, meaning it could be downgraded within two years.

Underscoring the tensions within the bloc over a crisis that has spread relentlessly over the past two years, Italy’s prime minister urged European policymakers on Friday to beware of dividing the continent with efforts to fight its debt crisis.

In a swipe at Germany, he warned against a "short-term hunger for rigor" in some countries.

Germany has led resistance to allowing the European Central Bank to ramp up its buying of government bonds on the open market to a big enough scale to douse the crisis, but Fitch late on Friday added to the pressure for just such a move.

It said that, following the EU summit a week ago, it had concluded that "a ‘comprehensive solution’ to the euro zone crisis is technically and politically beyond reach."

"Of particular concern is the absence of a credible financial backstop," it said. "In Fitch’s opinion this requires more active and explicit commitment from the ECB to mitigate the risk of self-fulfilling liquidity crises for potentially illiquid but solvent
Euro Area Member States."

It put Belgium, Spain, Slovenia, Italy, Ireland, and Cyprus on negative watch, which could mean a downgrade within three months.

Later another agency, Moody’s, cut Belgium’s credit rating by two notches, saying the euro zone debt crisis raised funding risks for countries with high public debt burdens, and said a further downgrade was possible within two years.

Standard & Poor’s had already warned 15 of the currency bloc’s 17 members they were close to a downgrade.

"The systemic nature of the euro zone crisis is having a profoundly adverse effect on economic and financial stability across the region," Fitch said.

The euro edged higher against the dollar but still suffered its worst weekly performance against the greenback in three months.

German Chancellor Angela Merkel gained some respite from domestic pressure to take a tougher line in the crisis when eurosceptics in her junior coalition partner, the Free Democrats, lost a grassroots party referendum aimed at blocking a permanent euro zone
rescue fund.

A victory for the eurosceptics could have brought down Merkel’s centre-right coalition, but the outcome still left the FDP split, with its public support in tatters.

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Posted by Hassan Ali on Dec 17 2011. Filed under Business. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry