The decision by Moody's to cut its outlook for Germany's triple-A rating to negative could stiffen German resistance to providing more financial assistance to Greece, which is asking for more time to meet the conditions of its bailout.
Politicians in Berlin played down the announcement, saying the German economy remained buoyant and structurally sound. But they added that cut was further evidence that Germany's own firefighting resources are limited, and that the government would struggle to persuade lawmakers and taxpayers to support further aid.
A spokesman for Chancellor Angela Merkel said the government had "taken note" of the Moody's statement, adding: "The chancellor has repeatedly stressed that Germany's power is not unlimited."
Hans Michelbach, a lawmaker for the Christian Social Union (CSU), the Bavarian sister party of Merkel's conservative Christian Democratic Union, said Germany had shown "considerable solidarity" towards ailing euro countries and would find it hard to provide more aid.
Rainer Brüderle, the parliamentary group leader of the pro-business Free Democrats, junior coalition partners to Merkel's conservatives, criticized the warning, saying: "The assessment of the American rating agency Moody's is rather short-term, perhaps also a little short-sighted. Germany has solid economc growth, the employment situation is excellent and the center-right government has done a lot stabilize the financial sector."
He added: "The euro zone as a whole will only win back trust if the recipient countries meet their reform pledges."
Greece's request for more time to meet the demands for budget cuts outlined in its second bailout package could lead to additional financing needs of between 10 billion and 50 billion, according to estimates of the troika, representatives of the European Commission, the European Central Bank and the International Monetary Fund who are monitoring Athens' implementation of reforms it agreed to in exchange for aid.
A 'Nein' to New Aid Package for Greece
German politicians have signalled they are not prepared to provide further aid to Greece. The country is at risk of going bankrupt this autumn if the troika's inspectors conclude that it isn't meeting its reform pledges, which could lead international lenders to withhold the next tranche of aid from the existing 130 billion ($157 billion) package.
Merkel's domestic room for maneuver is waning due to growing resistance in her own ranks to increasing Germany's financial commitments. Its total credits and guarantees in the crisis currently total 310 billion.
"Opposition to additional commitments for rescue measures is likely to strengthen," Berenberg Bank economist Christian Schulz told Reuters, adding that the small group of rebels in Merkel's coalition seen in recent parliamentary bailout votes could grow.
German bond prices fell on Tuesday after the news of the Moody's cut, with 10-year bund futures down as much as 0.7 percent at 144.51 and the 10-year yield rose eight basis point to 1.25 percent. But economists said German borrowing costs were likely to remain low because German debt remained a safe-haven investment.
cro -- with wre reports
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