Moody's wary of Europe, affirms US rating

Moody's Investor Services has signalled its worry that the creditworthiness of the eurozone and even European countries outside the 17-country bloc is threatened by issues with sovereign debt in the area. "In the absence of policy measures that stabilise market conditions over the short term, or those conditions stabilising for any other reason, credit risk will continue to rise," it said. Some countries may lose access to funding in light of the lack of political impetus to find a solution, threatening to move those countries' ratings into speculative grade. Moody's said the likelihood of "even more negative scenarios" had risen in recent weeks. Moody's said: "the situation is fluid and fast-moving. Policymakers are likely to respond to the escalating risks with new measures, the credit implications of which will require careful consideration. In the meantime, new shocks to financing conditions -- whether the announcement of new programmes or simply a further acceleration in the rise of funding cost across the euro area -- are likely to lead to selective rating changes."

By contrast, the failure of a so-called "supercommittee" of legislators in the US to reach a political agreement on budget deficit reduction will not affect the country's Triple-A rating, the agency said. That's because the lack of agreement triggers an automatic cut of the same amount. It added, however: "the committee outcome indicates that significant deficit reduction measures are unlikely to be adopted before the November 2012 elections". Moody's currently has a negative outlook on the US rating given the need over time for further deficit reduction to reverse the country's upward debt trajectory.

Source documents: The eurozone warning followed hard upon the US affirmation.