Moody’s headline-warning fails to pinpoint differences

The news that ratings agency Moody’s has placed a trio of eurozone AAA-rated sovereigns on negative outlook will come as no surprise to Euromoney Country Risk watchers. Scores for Germany, the Netherlands and Luxembourg are all lower in comparison with a year ago.

Germany, ranking 10 on ECR’s global scale, is down by 3.5 points since mid-2011, to 82.2. The Netherlands, ranking nine, is down by 1.6 to 83.1, and the small Grand Duchy, the world’s fourth safest sovereign, has fallen by 3.0 to 87.9.



However, the ECR survey still ranks Luxembourg higher than sixth-placed Finland, Moody’s strongest – and only other – AAA-rated sovereign.

The micro-state might be overly dependent on financial services for its wealth, but it is not perceived to be overly exposed to the crisis, according to ECR contributors. Its bank stability score might be lower than Finland’s but at 8.0 (out of 10) is higher than the German and Dutch scores - 7.1 and 7.3 respectively.

Plus, Luxembourg ranks higher than Finland for three out of five economic indicators: monetary policy/currency stability, employment/unemployment and government finances.

Their respective budget deficits are similar (both small), but Luxembourg’s debt burden, which at just 18.2% of GDP at end-2011 – having fallen from 19.1% at end-2010 – is the second smallest debt-pile in the eurozone, behind Estonia. Finnish debt, though relatively benign, is higher, at 48.6% of GDP – an important difference.

Luxembourg also scores higher than Finland for more political risk indicators. But both stand head and shoulders above Germany, where an election is due next year, and the Netherlands, which has a snap poll in September.