Moody’s raised its outlook for the German bond rating to “stable” from “negative” Friday, citing the lowered risk that Berlin would be called on to prop up weak eurozone economies.
Country-by-country progress in the eurozone, and progress in building the European Union’s institutional barriers to crisis contagion, meant there was less danger that Germany would have to lead further bailouts of other eurozone countries, Moody’s said.
In addition, it cited the narrowing of Germany’s fiscal deficit as also contributing to the strengthening of its top-flight AAA rating.
“Moody’s expects balanced fiscal budgets for 2014 and 2015… the authorities are unlikely to deviate from the prudent fiscal policy stance announced in the coalition agreement,” it said.
The rating firm pointed to an improving debt-to-GDP ratio, down to 79 percent from 81 percent in 2012, and the country’s low funding costs as strong positives as well.
Another reason for the improved outlook for Europe’s largest economy was that risks that the government would have to do more to support its banks had diminished.
“This change reflects German banks’ stronger ability to withstand shocks because of a year of reduced crisis-related losses and improved capital strength,” it said.
Moody’s said the triple-A rating was rooted in Germany’s advanced, diverse economy “and a history of stability-oriented macroeconomic policies.”
But it said that if the euro area debt crisis worsened, and especially if it affected larger economies like Italy or Spain, that could threaten the rating.