Azerbaijan, Baku, 9 October/ Trend , corr N. Ismayilova/ The unprecedented seizing-up of the US and global credit markets has led to a severe liquidity stress in Europe, affecting many banks and banking systems and prompting a broad range of bold policy responses all over Europe, Moody's Investors Service said today. Moody's concludes that European governments are taking calculated risks with public finances with the ultimate aim of protecting the vitality of their respective economies, Moody's Investors Service said.
"To date the responses to the crisis have included full nationalisations, capital injections, firm declarations of support and formal full-blanket guarantees. Other initiatives are possible as the situation remains very fluid. In addition, a reshaping of EU-wide financial stability arrangements is now being considered as a matter of urgency, and a relaxation of the Maastricht budget rules is increasingly probable," notes Pierre Cailleteau, Managing Director of Moody's Sovereign Risk Unit.
For the many governments -- i.e. Germany, Denmark, Italy, Greece, France, the UK -- that have announced their strong resolution to support their banking systems in case of need, the actual impact on public finances remains hypothetical. What is happening is that governments are now making explicit contingent liabilities that were so far only implicit -- although arguably the size of the commitment is larger than had been generally expected.
"The nature of the rescue operations poses a number of complicated questions that Moody's will discuss in its forthcoming Special Comment this week. Three considerations require heightened vigilance. Firstly, the crystallisation of contingent liabilities on the current scale is a process that is difficult to control. Secondly, the deleveraging that will probably result from the current dislocations will deepen the downturn in many countries. Finally, the relaxation of budgetary rules will add uncertainty with regard to the medium-term orientation of public finances, although Maastricht ceilings have never played a critical role in Moody's assessment of governments' creditworthiness," Mr Cailleteau adds.