How Germany shrugs off Moody's downgrade

The German government has shrugged off rating agency Moody's lowering of its outlook to 'negative' and said that the country continues to remain an anchor of economic stability in Europe.

The German economy has been in a stable and solid condition and this will not be changed by the rating agency's assessment, German Finance Ministry said in a statement reacting to Moody's report published on Monday night.

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Moody's had revised credit outlook of Germany to negative, raising the possibility of the economic major losing its coveted 'Aaa' rating amid worsening European debt turmoil.

"Given the greater ability to absorb the costs associated with this support, this burden will likely fall most heavily on more highly rated member states if the euro area is to be preserved in its current form," the agency had said.

Germany expects a balanced budget in 2014, the ministry said in a statement, adding that capitalisation of the banking sector has improved significantly.

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Confidence in Germany is also very high in the financial markets and this is reflected in the low re-financing costs for German bonds, it said.

The ministry criticised Moody's for focusing on short-term risks, while the prospects for stability in the long term have not been given due consideration.

The risks mentioned by the rating agency in the euro-zone are also not new, the statement said, adding, however, that the Ministry is 'taking note' of Moody's opinion.

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The rating agency cited additional financial burden on Germany if Spain and Italy needed a bailout and the risks involved if Greece leaves the euro-zone as the main reasons for lowering its outlook for the region's largest economy and the main contributor to its rescue fund.

German Economics Minister Philipp Roesler said the country's economy is structurally in a robust shape.

"On European level, familiar risks persisted, but we are convinced that comprehensive measures put in place to deepen the stability union will be successful in the medium and long-term," he said in an interview to a newspaper.

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European financial markets remained largely unaffected by Moody's lowering of Germany's outlook and its warning that the country may lose its Aaa credit rating.

German benchmark index Dax in Frankfurt dropped slightly and closed 0.45 per cent lower at 6,390 points on Tuesday.

The yield on Germany's 10-year bonds rose by two basic points to 1.19 per cent.

Many investors have been paying Germany in recent months for allowing them to invest in its sovereign bonds, which still enjoys a high reputation as a safe haven for investors.