By Nick Mann | 24 July 2012

Ratings agency Moody’s last night changed its outlook for the triple-A credit ratings of Germany, the Netherlands and Luxembourg from stable to negative because of the growing risk of Greece exiting the euro.

The agency added that even if Greece remained in the euro, the risk of a bailout for Spain and Italy was also increasing. Countries whose strong balance sheets mean they have a higher rating are expected to bear the brunt of any collective bailout of either economy, an issue that has already prompted Moody’s to downgrade its outlook for Austria and France.

If Greece did leave the single currency, it would pose a ‘material threat’ to the euro, setting off a chain of financial sector shocks that would put pressure on both governments and banks, Moody’s said.

These could be contained only at a ‘very high cost’ and failure would result ‘in a gradual unwinding of the currency union, which would be profoundly negative for all euro area members’, it added.

The problems faced by both Spain and Italy had increased the risk that they too would require ‘some kind’ of external support, the agency said. These would be significantly larger than any previous government bailouts.

‘The scale of these contingent liabilities is of a materially larger order of magnitude for these countries due to their size and their debt burdens; for example, the size of Spain's economy and government bond market is around double the combined size of those of Greece, Portugal and Ireland,’ it said.

Institutional reforms could improve the credit standing of most or all eurozone countries in the long term, but this might take ‘many years’, Moody’s said. In the meantime, the additional pressure of potentially having to bail out weaker nations would increase pressure on the strongest nations’ credit standings.

Moody’s announcement leaves Finland as the only AAA-rated eurozone nation to retain a stable outlook from the ratings agency. Reaffirming this outlook in yesterday’s announcement, Moody’s said Finland’s ‘unique credit rating’ set it apart from the other top-rated countries.

Finland’s absence of net debt, its small banking system and its limited trade exposure to the eurozone all helped it to ‘provide strong buffers which differentiate it from the other AAAs’, Moody’s explained.

Jean-Claude Juncker, president of the Eurogroup of eurozone finance ministers, said the announcement confirmed the ‘very strong’ rating enjoyed by a number of eurozone countries. This was ‘supported by the sound fundamentals which these and other euro area countries continue to enjoy’.

‘Against this background, we reiterate our strong commitment to ensure the stability of the euro area as a whole,’ he added.