By Brai Odion-Esene

WASHINGTON (MNI) – Moody’s Investors Service Monday said it will
not allow “hypothetical” or “vaguely possible” concerns to influence its
ratings actions, responding to mounting speculation in recent weeks that
the Greek debt crisis spelt an end for the Eurozone and the euro.

In research note that a Moody’s spokeswoman told Market News
International “clarified our rating approach,” The firm said the
question is whether and how it should change its sovereign ratings to
account for a very low-likelihood/high-severity event.

Its conclusion, that, “On balance, we believe it is better to flag
possible migration risk in our research than to change our ratings based
on highly hypothetical concerns — such as the exit from the Eurozone,
the end of the euro, or a run on the sterling or the U.S. dollar.”

It added that, for these types of risks to affect a sovereign
rating, “they would have to be plausible rather than simply vaguely
possible.”

“We might risk ranking credits incorrectly if we were to place
undue weight on such extreme events within our sovereign rating
analysis,” Moody’s said, since the circumstances that might prompt such
extraordinary events could prove to be even more adverse for
non-sovereign than for sovereign debt.

“However, if we were to change these — as we clearly cannot commit
to indefinite rating stability for any country — we would also aim to
clearly communicate our evolving views through the full set of tools
available to us,” it warned.

It notes that currently, a key concern for investors is if EU
nations have the ability to face speculative attacks and whether there
could be a dislocation of the Eurozone. This scenario remains “highly
implausible” for at least two reasons according to Moody’s.

While there is now much less uniform enthusiasm for the European
project, Moody’s believes the cost — in terms of political capital —
of taking a risk with what it calls “the most successful regional
political project of the past few centuries” would be exorbitant.

The fate of the euro cannot be dissociated from the fate of
European integration itself, it said.

The other reason, the report continued, is that its EU members
still have ammunition in the form of concerted interventions on bond
markets — including purchases by the ECB — and mechanisms to issue
European debt based on joint EU government guarantees. Eurozone members
could also resort to a European debt agency.

European Union finance ministers have already agreed a E720 billion
deal in a bid to shore up the Eurozone and stop market attacks on
heavily-indebted members of the currency club.

In addition, the ECB, bowing to intense market pressure that has
hammered the euro and threatened the very foundations of the Eurozone,
announced early Monday morning that it will buy government and private
sector debt in the hope of stabilizing segments of the market it
described as “dysfunctional.”

“By pooling their resources while reinforcing multilateral
surveillance and coordination, European countries are effectively taking
another step forward on the road to integration,” Moody’s said.

In light of the unusual degree of uncertainty — and ever mindful
of the key role of transparency and predictability in helping to bring
market prices more in line with credit fundamentals — Moody’s said it
is committed to following, “to the extent possible,” its practice of
clearly communicating to the market the evolution of its credit opinions
through its research, rating outlooks, rating reviews, and, ultimately,
rating changes.

And because of the disruptive impact of what it calls “unfounded
rumours on investors and markets,” the ratings agency is taking the
unusual step of providing more information about the timing and extent
of our forthcoming rating actions.

“It goes without saying that this focus on transparency does not in
any way prevent us from making whatever rating adjustment necessary in
case unexpected events occur,” Moody’s warned.

For now, Moody’s said it will complete its review of Greece and
Portugal’s ratings in the coming four weeks, while it expects no
significant rating action on Ireland in the short run.

As for countries like Spain and Italy — who are affected by
contagion risks but have stable outlooks — Moody’s said it has no plans
to change these ratings in the near future.

** Market News International Washington Bureau: 202-371-2121 **

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