Moody’s Investors Service changed the long-term rating outlooks of six German states to negative from stable, citing the close fiscal ties between the regions and the federal government, whose outlook was downgraded two days ago.
Six of Germany’s 16 states, or “Laender” in German -- Bavaria, Baden-Wuerttemberg, Berlin, Brandenburg, Saxony-Anhalt and North Rhine-Westphalia -- have “extremely strong financial and operational linkages” with the federal government, Moody’s said on its website. The “negative outlooks on German Laender mirror the negative outlook on Germany’s sovereign rating.”
Moody’s said factors influencing its decision are Germany’s debt equalisation system that transfers revenue from richer to poorer states and the size of the regions’ accumulated debt.
Berlin, the capital city that is also a state, does not “presently” anticipate higher costs in selling bonds as a result of Moody’s decision, the city’s finance senator, Ulrich Nussbaum, was cited as saying in an interview published in the Tagesspiegel newspaper today. Moody’s rates the city’s bonds Aa1.
Euro-area bonds fell after Moody’s lowered the outlook to negative on July 23 for the top Aaa credit ratings of Germany, the Netherlands and Luxembourg, citing “rising uncertainty” over Europe’s debt crisis. Moody’s left Finland as the only country in the 17-nation euro region with a stable outlook for its top ranking.
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