Moody credit cuts for eurozone rescue fund

The agency said on Friday that the downgrade of France, the eurozone second-largest economy and the main financial supporter of ESM, on November 19 was the main reason behind cutting the rescue funds’ ratings.

Pointing to the close relationship in credit risk among the rescue funds and their main financial backers, Moody’s said that “The credit risks and ratings of the ESM and the EFSF are closely aligned to those of its strongest supporters.”

The agency is concerned that Paris might not be able to maintain its financial obligations, among them its commitment to support the ESM.

“France is the second largest contributor to the two entities' financial resources, as a provider of callable capital in the case of the ESM and as a guarantor country in the case of the EFSF,” the agency added.

Meanwhile, ESM chief Klaus Regling has objected the downgrade, highlighting that the ratings agency's decision was “difficult to comprehend.”

“We disagree with the rating agency's approach which does not sufficiently acknowledge ESM's exceptionally strong institutional framework, political commitment and capital structure.”

The ESM and EFSF are vital mechanisms mainly established to provide the crisis-stricken euro area member states with financial aid from Europe's affluent nations.

Various eurozone member states have been struggling with deep economic stagnancy since the bloc’s financial crisis began five years ago.

MR/AZ/MA