Moody's puts European Union on notice

September 4, 2012: 8:00 AM ET
moodys eu
Moody's cuts the outlook on the European Union's Aaa credit rating to negative from stable.
NEW YORK (CNNMoney)

Moody's put the European Union on notice Monday that its top-notch Aaa rating is at risk of downgrade, cutting the outlook on the EU's creditworthiness to "negative" from "stable" because of the continent's ongoing debt crisis.

The move follows a similar action in July, when Moody's revised to negative the outlooks on Aaa-rated Germany and the Netherlands. The outlooks of France and the U.K. had previously been revised to negative.

The four countries account for about 45% of the EU's budget revenue.

"The creditworthiness of these member states is highly correlated, as they are all exposed, albeit to varying degrees, to the euro area debt crisis," Moody's stated.

Moody's said it lowered the EU's outlook because it believed that the countries likely would not "prioritize the commitment to backstop the EU debt obligations over servicing their own debt obligations."

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The announcement comes at a crucial moment in the European debt crisis.

The European Central Bank, which meets this week, is widely expected on Thursday to unveil details of a new bond-buying program for countries that agree to certain conditions.

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ECB President Mario Draghi, in an opinion article last week, argued that "exceptional measures" are justified under the ECB's mandate when financial markets are "influenced by irrational fears."

The new bond-buying program would be primarily aimed at Spain and Italy, where bond yields rose to unsustainable levels in July. Borrowing costs for both countries eased in August, following Draghi's pledge to do "whatever it takes" to preserve the euro currency.

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