(The following statement was released by the rating agency)
Sept 26 - Fitch Ratings has published the latest version of its Eurozone Sovereign Snapshot - an interactive document of existing and new research, and the latest Fitch commentary on all 17 eurozone sovereigns.
Outright Monetary Transactions (OMT) is the latest and most significant intervention by the ECB to address the eurozone crisis and fears over the viability of the euro. From a sovereign ratings perspective, the ECB’s initiative is positive. Potentially unlimited intervention by the ECB in the sovereign bond market with no loss of seniority for existing creditors lowers the risk of self-fulfilling liquidity and even solvency crisis. If it is successful, it will ease financing and credit conditions for the economy as well as the sovereign and render ECB monetary policy more effective.
The European Stability Mechanism (ESM) cleared the hurdle of the German constitutional court’s approval and European leaders agreed in principle to a single eurozone bank supervisory mechanism directed by the ECB and the possibility of the ESM directly recapitalising banks. By sharing the fiscal cost of bank restructuring rather than letting it fall solely on the home sovereign, banking union would weaken the vicious circle between banks and sovereigns that has been a key feature of the crisis.
Rating stabilisation hinges crucially on the success of the macroeconomic adjustment and structural reform programmes. These will close the competitiveness gap between northern and southern Europe, enhance growth potential and employment prospects and place public finances on a sustainable path. OMT and the creation of the ESM provide the bridge necessary for the adjustment to occur over the next few years as well as reform of Economic and Monetary Union. Negative economic and fiscal surprises pose the main near-term threat to sovereign ratings across the region.
The full report, entitled “Eurozone Sovereign Snapshot”, is available at www.fitchratings.com
Link to Fitch Ratings’ Report: Eurozone Sovereign Snapshot - Q3 2012