Moody''s changes outlook on Luxembourg''s Aaa govt bond rating to stable

 
FREE EXCERPT

London: Credit ratings agency Moody's has today changed the outlook on Luxembourg's Aaa government bond rating to stable from negative. Concurrently, Moody's has affirmed Luxembourg's Aaa rating.The key drivers of today's outlook change are as follows:Moody's believes there is now a lower likelihood that Luxembourg's government balance sheet will need to contribute to further collective support to non-core euro area countries, and in particular to Italy or Spain. Furthermore, Moody's believes that Luxembourg's exposure to contagion risks within the wider euro area has reduced.The Luxembourg economy is steadily recovering, with the financial services industry providing a notable contribution.The first driver of Moody's decision to change the outlook on Luxembourg's Aaa rating to stable is the reduced risk that the government balance sheet will be affected by the need to contribute to further collective support for other euro area countries, and in particular to Italy or Spain, along with reduced contagion risks within the wider euro area.These improvements in conditions reflect country-by-country progress in consolidating public finances and correcting macroeconomic imbalances. All peripheral countries share the same improving trend, though the extent of the progress achieved and the challenges that remain vary across countries. This has been reflected in recent outlook changes and rating upgrades, including the recent upgrade of Spain's rating to Baa2 (positive) from Baa3 (stable) and Ireland's rating to Baa3 (positive) from Ba1 (stable), the change in the outlooks on Italy's Baa2 rating and Portugal's Ba3 rating to stable from negative, and the upgrade of Greece's rating to Caa3 stable from C.Improvements in the euro area institutional framework have also contributed to the reduction in contagion risks. These include the introduction of Outright Monetary Transactions (OMT) by the European Central Bank (ECB), the set-up of back-stop facilities like the European Stability Mechanism (ESM), and progress towards a 'Banking Union'. Ultimately, these changes imply (1) that the likelihood of...

To continue reading

REQUEST YOUR TRIAL