Germany downgraded by Egan-Jones Ratings
by Dean Carroll
Germany's credit score has been lowered from AA to AA- by Egan-Jones Ratings because of the country's exposure to the eurozone crisis and the continuing economic problems across the European Union. The American company - which is not considered to be one of 'the big three' rating agencies - forecast a rise in Germany's debt to gross domestic product, up from 83 per cent in 2010 to 86 per cent in 2011, and a deficit to GDP of 4.6 per cent. And EJR warned that Germany was "getting weaker for a top-tier country", pointing to trouble ahead for Europe's powerhouse economy with a "negative outlook".
The EJR report stated: "Germany maintains its position as the EU's top economy. However, it has been shouldering the burdens of other EU countries via its exposure to the European Financial Stability Facility and indirectly via the European Central Bank's hefty exposure to the weaker banks and weaker sovereign credits." Unemployment in Germany remained low at 6.8 per cent, but was likely to rise as a result of austerity measures across EU member states and falling economic growth leading to contagion due to lower levels of trade and consumer confidence.
The report added: "Inflation has been fairly moderate at 2 per cent, but we expect an increase as a result of the decline in the euro relative to the dollar. German Chancellor Angela Merkel continues to create tension with EU member states by pushing for ratification of changes to the Lisbon Treaty. The government insists that private investors bear more of the cost of further European bail-outs. Germany will be footing a significant portion of the bill for the EU's problems via the ECB, the EFSF and the International Monetary Fund and it will hurt credit quality."
Despite the downgrade, EJR maintained that Germany would achieve marginal GDP growth in 2012 – although, it would be slower than 2011. The rating action comes just days after Standard & Poor's downgraded a number of eurozone countries and the EFSF, but retained Germany's AAA rating. Since then, further downgrades of European companies have followed – with more downgrades of banks expected in the coming days.