Ratings agencies Moody's, Standard & Poor's put pressure on euro zone

Moody's Investors Service said it still expects to review its ratings on all European Union sovereign credit in the first quarter of next year, adding that last week's agreement by European policymakers offered few new measures to resolve the region's debt crisis.

Twenty-six of the 27 European Union leaders on Friday agreed to pursue stricter budget rules for the single currency area and also to have euro zone states and others provide up to 200 billion euros in bilateral loans to the International Monetary Fund (IMF) to help tackle the crisis.

"In substance, however, the communique offers few new measures, and does not change our view that risks to the cohesion of the euro area continue to rise," Moody's said in its weekly credit report.

"As we announced in November, unless credit market conditions stabilise in the near future, our ratings of all EU sovereigns will need to be revisited. The communique does not change that view, and we continue to expect to complete such a repositioning during the first quarter of 2012."

The communique reflects the continuing tension between euro area leaders' recognition of the need to increase support for fiscally weaker countries and the significant opposition within stronger countries to doing so, Moody's noted.

"Amid the increasing pressure on euro area authorities to act quickly to restore credit market confidence, the constraints they face are also rising. The longer that remains the case, the greater the risk of adverse economic conditions that would add to the already sizeable challenges facing the authorities' coordination and debt reduction efforts."

Meanwhile, ratings agency Standard & Poor's put more pressure on the euro zone with its chief economist saying time was running out for the currency bloc to resolve its debt problems and that it might need another financial shock to get it moving.

Jean-Michel Six, chief economist of the agency that shocked financial markets last week by putting 15 euro zone countries on a watch for a potential downgrade, said last week's EU summit agreement was a significant step forward, but not enough.

"There is probably yet another shock required before everybody in the euro zone reads from the same page, for instance a major German bank experiencing some real difficulties on the markets, which is a genuine possibility in the near term," Six told a business conference in Tel Aviv.

"Then there would be a recognition that everybody is indeed on the same boat and that even German institutions can be affected by this contagion. I'm afraid this may still be required."