Moody's downgrades Belgium's debt by 2 notches

AP News
Posted: Dec 16, 2011 6:19 PM
Moody's downgrades Belgium's debt by 2 notches

Moody's Investors Services on Friday downgraded Belgium's credit rating by two notches, citing strains on eurozone countries as they try to finance their heavy debt loads amid the regional financial crisis.

The ratings agency cut Belgium's local- and foreign-currency government bond ratings to "Aa3" from Aa1," with a negative outlook. The ratings remain investment grade.

Moody's said the downgrade comes as soaring borrowing costs strain the finances of heavily indebted countries that use the euro, like Belgium. The strains are also making it difficult for Belgium to reduce debt and rein in spending.

Other factors included the impact the crisis is having on Belgium's economic growth, and concerns about the small nation's banking sector.

Moody's earlier this week said the debt of the euro area countries is under pressure, because of the uncertainty surrounding efforts to solve the region's debt crisis. The agency has said it is reviewing its ratings on France's debt, and downgraded Hungary late last month. It already rates the bonds of Greece, Ireland and Portugal as "junk."

It downgrading Belgium, Moody's said higher costs for financing public borrowing could "significantly complicate" efforts to reduce the country's overall level of debt. In addition, there is an increased probability _ although it is still low _ that further turmoil could result in the inability to sell bonds.

The ratings agency is also concerned about the ability for the "small and very open Belgian economy" to grow, particularly as the rest of Europe aims to reduce debt by putting strict austerity measures into place. Belgium may find it necessary to further cut spending beyond the roughly euro11 billion to euro16 billion cuts planned, which would further weigh on economic growth.

Moody's pointed to Belgium's recent political trouble as another concern in addressing its economic problems.

Elio Di Rupo took the oath as Belgium's prime minister on Dec. 6, ending 541 days under a caretaker government that resulted from impasse among negotiators trying to bridge the divide between the country's linguistic groups.

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"Belgium's recent experience of political bargaining indicates that consensus on additional measures can be difficult to achieve," Moody's said.

Finally, Moody's raised the issue of Belgium's banking sector. The ratings agency is concerned that the continued dismantling of Dexia Credit Local could further increase debt. In October, the Dexia Bank Belgium unit was nationalized at a cost of euro4 billion. That move increased Belgium's exposure to the rest of the banking group. Combined, Moody's estimated that exposure to be close to 10 percent of the nation's gross domestic product.

Earlier Friday, Fitch Ratings said it was considering further cuts to the credit scores of Belgium and five other eurozone nations.