US ratings company Moody's still maintains its Aaa status for Germany but has changed the outlook from stable to negative. Berlin insists it is unfazed by the news but Moody's has also changed the outlook for the EFSF.
For France's former President Nicolas Sarkozy it was a question of national and probably personal pride: A downgrade of France's top-notch credit rating was simply unacceptable. Sarkozy was upset about the idea that the three leading ratings agencies had the power to question the credit worthiness of entire countries. At times, the US-based agencies were perceived even as enemies of France that needed to be fought off. But in January, the dreaded downgrade was issued after all: Standard & Poor's cut France's rating from "AAA" to the second-best level, "AA+".
More than just a question of prestige
Germany so far still enjoys a top rating from all the three major agencies - and the government in Berlin quickly said it was not concerned about the warning from Moody's that this might change in the future. But ratings are more than just a question of prestige: if a country is hit with a downgrade it will have to pay higher interest when borrowing on the international financial markets. The possible consequences of which can be seen in the case of Spain: the country is already plagued by excessive debt and now has to pay around seven percent interest on its freshly-issued government bonds.
The Monday downgrade of the economic outlook for Germany, the Netherlands and Luxembourg also affects the outlook of the EU's EFSF rescue fund. On Tuesday, Moody's lowered the outlook for the fund from stable to negative. "Risks that would negatively affect the creditworthiness of the EFSF program, leading to a downgrade of the EFSF's rating, would include a deterioration in the creditworthiness of the participating euro area member states," Moody's said.
Commerzbank analyst Ralph Solveen is neither surprised by the fact that for the time being Germany keeps its triple-A rating, nor by the Moody's threat of a "negative outlook." But even an actual downgrade would have only limited consequences: "It's hardly news that Germany has shouldered additional burdens and that - in the case of a worsening of the debt crisis - this would have consequences on Berlin and the country's creditworthiness."
This risk is known on the markets and already factored into the current interest rates. Solveen therefore does not believe the news from Moody's will affect German borrowing rates in the coming weeks and months.
Making money with debt
"There's a lot of trust in Germany on the international financial markets; this is reflected in the low refinancing costs of German government bonds" Berlin's official statement in response to Moody's said. What it refers to is the fact that for certain government bonds Berlin currently has to pay no interest whatsoever. In fact, there's a negative interest which means that investors are actually paying for the perceived priviledge of lending money to Germany.
This might be hard to understand even for specialists, Rolf Schneider of Allianz insurance told DW. On top of the negative interest would in fact come the inflation. Apparently, Schneider assumes, investors who are willing to make a loss when buying German government bonds expect "the eurzone to collapse and an eventual return to the Deutschmark. In this case, Germany would be the only state that could offer security for the investment."
There simply are few alternatives when trying to invest large sums in the short term just now. Billions cannot be kept under the mattress and Germany is seen by many as a somewhat safer haven than other options on the financial markets, says Solveen. "When in the past you had your safe in the bank to put your money or jewelry, then people also had to pay for that. And it seems people are willing to pay German Finance Minister [Wolfgang] Schäuble for him looking after their money."
It seems like an enviable position for Berlin to be in, so perhaps the negative outlook from Moody's isn't much of a problem. And yet both Solveen and Schneider agree that the assessment from the ratings agency does point towards the growing risks for Germany of being affected by the crisis.
No alternative to ratings
The two analysts don't subscribe to the theory of the powers of the ratings agencies being on the decline. Large investment groups are tied to the regulations by the supervisory authorities: They can only take investments into their portfolio of a certain ratings level. "As long as the institutional conditions of our financial architecture remains as it is, ratings are bound to have a significant role," says Schneider. Yet he adds that he welcomes the fact that for relatively transparent forms of investments like German government bonds, they probably will diminish in importance.