Moody’s cuts Germany’s outlook to ‘negative’

The eurozone crisis took a fresh turn for the worse on Tuesday after ratings agency Moody's threatened to cut Germany's coveted top credit rating amid fears the bloc's difficulties could pull it apart.

Moody's cuts Germany's outlook to 'negative'
Photo: DPA

The shock decision to slash the outlook of Germany, Europe’s top economy and paymaster, from “stable” to “negative” came as auditors arrived in debt-wracked Greece and Spain’s top finance official headed to Berlin for talks.

The news pushed Spain’s borrowing costs above 7.5 percent – well above the seven-percent mark that forced others into bailouts – but European stocks rebounded slightly as positive Chinese data offset the Moody’s bombshell.

Moody’s said its decision was based on “rising uncertainty regarding the outcome of the euro area debt crisis (and the) … increased likelihood of Greece’s exit from the euro area.”

Even if Greece manages to stay in the 17-member bloc, Moody’s said there was “an increasing likelihood that greater collective support for other euro area sovereigns, most notably Spain and Italy, will be required.”

Germany’s top rating could be cut, Moody’s said, if Berlin needed to shore up its banks as a result of the crisis, if the bloc were to split or Germany were to see its own borrowing costs – currently at record lows – rise.

Policymakers raced to dismiss the action.

The head of the Eurogroup of eurozone finance ministers, Jean-Claude Juncker, immediately stressed a “strong commitment” to the bloc’s stability after the warning, which also hit the Netherlands and his native Luxembourg.

Moody’s latest decision “confirms the very strong rating enjoyed by a number of euro area member states, as supported by the sound fundamentals which these (three) and other euro area countries continue to enjoy,” said Juncker.

Germany’s finance ministry was even more dismissive, saying in a statement issued late Monday: “The eurozone risks that Moody’s mentions are not new.

“Moody’s assessment is derived mainly from short-term risks, while the longer-term outlook for stabilisation goes unmentioned … The very sound state of Germany’s own economy and public finances remains unchanged,” it said.

Berlin would maintain its “safe haven status” and continue to act as a “stability anchor in the euro area,” the finance ministry vowed.

But in another sign that Germany’s resistance to the eurozone turbulence was fading, a key business confidence index slipped to a three-year low, prompting analysts to warn the German economy could deliver below-trend growth.

In Athens, auditors from the International Monetary Fund, European Central Bank were arriving to review Greek progress towards securing a further slice of bailout cash before the country goes bankrupt.

Officials in Germany have insisted they will wait for this report, due in early September, before casting judgement on Greece’s ability to stay in the eurozone as voices in Berlin calling for their exit grow louder.

Meanwhile, political efforts to contain the crisis were set to intensify, with Spanish Economy Minister Luis de Guindos due in Berlin for talks with German Finance Minister Wolfgang Schäuble.

Berlin has insisted it is a “regular meeting” but spokeswoman Marianne Kothe acknowledged on Monday: “They will of course discuss the current situation in Spain” amid speculation Madrid will soon be forced into a full-blown bailout.

The meeting takes place behind closed doors and no news conference was expected following the meeting.

De Guindos insisted Monday that there was no possibility of a sovereign bailout after Spain clinched a rescue package last week of up to €100 billion for its stricken banks.

But Spain’s troubles showed little sign of abating Tuesday as it paid higher rates to borrow for three and six months, although demand was stronger than at a previous such auction.

While markets broadly took the Moody’s action in their stride, some analysts saw implications for Chancellor Angela Merkel’s crisis-fighting strategy.

“Opposition to additional commitments for rescue measures is likely to strengthen,” said Christian Schulz from Berenberg Bank, noting Merkel has had to rely on opposition support in parliament to push through key measures.

“Even more German reluctance to help will further erode the confidence of investors and savers in southern Europe,” Schulz warned.


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EXPLAINED: Berlin’s latest Covid rules

In response to rapidly rising Covid-19 infection rates, the Berlin Senate has introduced stricter rules, which came into force on Saturday, November 27th. Here's what you need to know.

A sign in front of a waxing studio in Berlin indicates the rule of the 2G system
A sign in front of a waxing studio indicates the rule of the 2G system with access only for fully vaccinated people and those who can show proof of recovery from Covid-19 as restrictions tighten in Berlin. STEFANIE LOOS / AFP

The Senate agreed on the tougher restrictions on Tuesday, November 23rd with the goal of reducing contacts and mobility, according to State Secretary of Health Martin Matz (SPD).

He explained after the meeting that these measures should slow the increase in Covid-19 infection rates, which was important as “the situation had, unfortunately, deteriorated over the past weeks”, according to media reports.

READ ALSO: Tougher Covid measures needed to stop 100,000 more deaths, warns top German virologist

Essentially, the new rules exclude from much of public life anyone who cannot show proof of vaccination or recovery from Covid-19. You’ll find more details of how different sectors are affected below.

If you haven’t been vaccinated or recovered (2G – geimpft (vaccinated) or genesen (recovered)) from Covid-19, then you can only go into shops for essential supplies, i.e. food shopping in supermarkets or to drugstores and pharmacies.

Many – but not all – of the rules for shopping are the same as those passed in the neighbouring state of Brandenburg in order to avoid promoting ‘shopping tourism’ with different restrictions in different states.

2G applies here, too, as well as the requirement to wear a mask with most places now no longer accepting a negative test for entry. Only minors are exempt from this requirement.

Sport, culture, clubs
Indoor sports halls will off-limits to anyone who hasn’t  been vaccinated or can’t show proof of recovery from Covid-19. 2G is also in force for cultural events, such as plays and concerts, where there’s also a requirement to wear a mask. 

In places where mask-wearing isn’t possible, such as dance clubs, then a negative test and social distancing are required (capacity is capped at 50 percent of the maximum).

Restaurants, bars, pubs (indoors)
You have to wear a mask in all of these places when you come in, leave or move around. You can only take your mask off while you’re sat down. 2G rules also apply here.

Hotels and other types of accommodation 
Restrictions are tougher here, too, with 2G now in force. This means that unvaccinated people can no longer get a room, even if they have a negative test.

For close-contact services, such as hairdressers and beauticians, it’s up to the service providers themselves to decide whether they require customers to wear masks or a negative test.

Football matches and other large-scale events
Rules have changed here, too. From December 1st, capacity will be limited to 5,000 people plus 50 percent of the total potential stadium or arena capacity. And only those who’ve been vaccinated or have recovered from Covid-19 will be allowed in. Masks are also compulsory.

For the Olympic Stadium, this means capacity will be capped at 42,000 spectators and 16,000 for the Alte Försterei stadium. 

3G rules – ie vaccinated, recovered or a negative test – still apply on the U-Bahn, S-Bahn, trams and buses in Berlin. It was not possible to tighten restrictions, Matz said, as the regulations were issued at national level.

According to the German Act on the Prevention and Control of Infectious Diseases, people have to wear a surgical mask or an FFP2 mask  on public transport.

Christmas markets
The Senate currently has no plans to cancel the capital’s Christmas markets, some of which have been open since Monday. 

According to Matz, 2G rules apply and wearing a mask is compulsory.

Schools and day-care
Pupils will still have to take Covid tests three times a week and, in classes where there are at least two children who test positive in the rapid antigen tests, then tests should be carried out daily for a week.  

Unlike in Brandenburg, there are currently no plans to move away from face-to-face teaching. The child-friendly ‘lollipop’ Covid tests will be made compulsory in day-care centres and parents will be required to confirm that the tests have been carried out. Day-care staff have to document the results.

What about vaccination centres?
Berlin wants to expand these and set up new ones, according to Matz. A new vaccination centre should open in the Ring centre at the end of the week and 50 soldiers from the German army have been helping at the vaccination centre at the Exhibition Centre each day since last week.

The capacity in the new vaccination centre in the Lindencenter in Lichtenberg is expected to be doubled. There are also additional vaccination appointments so that people can get their jabs more quickly. Currently, all appointments are fully booked well into the new year.