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By Nick Reeve | Published Jul 24, 2012

Moody’s warns of German downgrade on Greek exit

Credit ratings agency Moody’s has put some of the eurozone’s strongest countries, including Germany, on negative outlook as the likelihood of Greece leaving the single currency rises.

Moody’s said yesterday that Germany, the Netherlands and Luxembourg - which all have Aaa-rated debt - were now on negative outlook as struggling eurozone members would require more financial support.

Germany yesterday saw its 10-year government debt yield sink to a new record low of 1.17 per cent as investors continued to flee to perceived safe havens. Dutch 10-year bonds were this morning yielding 1.64 per cent, and Luxembourg’s debt was yielding 1.62 per cent according to latest figures from the ECB.

Moody’s said in a statement: “The level of uncertainty about the outlook for the area and the potential impact of plausible scenarios on member states, are no longer consistent with stable outlooks.”

Finland is now the only eurozone member with a stable outlook for its Aaa credit rating.

Germany’s finance ministry responded by claiming the concerns were “not new”, adding that the “very sound state of Germany’s own economy and public finances remains unchanged”.

Kames Capital’s joint head of fixed income David Roberts said: “To assume German debt is in some way a good investment when investors have to pay to lend is nonsense.

“The most spurious argument I have heard is that you should buy bunds because when Europe breaks up you will be handed a pile of Deutschemarks. German finances are so intertwined with the broader eurozone that to expect an easy or short term exit is nonsensical.”

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