The latest country in the eurozone to be downgraded is Belgium which Moody’s has brought down by two notches. Amidst growing pressure to get a grip on the growing debt crisis in the EU, the ratings agencies are warning leaders in there to take advantage of the bailout package worth multibillion euros.
After the downgrade, Belgium now stands at a rating of Aa3. Moody’s went as far as stating that indebted countries like Belgium with low ratings will find it increasingly difficult to get loans to fund their debts which would be the method by which they could finally realise economic growth in the midst of the growing debt crisis and austerity drive in the EU.
In addition to Moody’s downgrade, Fitch is also considering a downgrade which would put Belgium in line with Italy, Spain, Cyprus, Ireland and Slovenia. Fortunately for France, they are holding onto their AAA rating for the time being but Fitch noted that their financial outlook is being viewed not as ‘negative.’ This portends a downgrade in the near future if history holds true to how the rating agencies word their preludes to downgrading.
A day before the downgrade of Belgium, the German chancellor and French President announced plans to institute a ‘fiscal compact’ which, in their words, would prevent countries from going bankrupt whilst rescuing the single currency euro. This plan could be set in motion with only the backing of 9 member states out of 17. As well, this fiscal compacting would give Brussels greater power to enforce budgetary control whilst enabling them to protect against shockwaves rolling out from the financial crisis.
In the final analysis by ratings agencies such as Fitch, there is some question as to clearly identifying what would happen should the compact fail and who would pay if this plan doesn’t succeed. Fitch goes farther by saying it is this uncertainty in the plan that is undermining the EU’s position with the ranking agencies.
Meanwhile Italy is none too pleased with the new measures for stricter austerity and there is now some talk of a split between the north and south. Enforces austerity measures would be meted out by two main institutions in the EU, the European Commission and the Court of Justice. They would be empowered to compel member nations reduce their deficits.
The world is watching as member nations tend not to be in agreement with France and Germany’s role in deciding their fates and are now looking to see if Italy’s contention that a north – south split may be in the works.