EU Debt Summit Fails to Satisfy Ratings Agencies

Investors were bracing for a possible mass downgrade of euro zone countries as soon as this week after EU leaders failed to come up with decisive measures to tackle the region's debt crisis.

Moody's Investors Service said on Monday it intends to review the ratings of all 27 members of the European Union in the first quarter of 2012 after EU leaders offered "few new measures" to resolve the crisis in a summit on Friday.

Fitch Ratings said the summit, in which leaders agreed to draft a new treaty for deeper economic integration, failed to provide a "comprehensive" solution to the crisis — thus increasing short-term pressure on euro zone sovereign debt ratings.

Standard & Poor's, which warned last week of a possible downgrade of 15 euro zone countries shortly after the summit, still has to announce its decision.

S&P last week placed the ratings of 15 euro zone countries on credit watch negative — which signals a possible imminent downgrade — saying that "systemic stresses" were building up as credit conditions tightened in the 17-nation region.

The agency, which in August stripped the U.S. of its AAA rating, said it would focus its decision on political dynamics that "appear to be limiting the effectiveness of efforts to resolve the market confidence crisis."

For one thing, the assessment of the summit's success by rival ratings agencies does not bode well for S&P's upcoming decision.

Moody's said the outcome of the EU summit did not change its view that risks to the cohesion of the euro area continue to rise.

"As we announced in November, unless credit market conditions stabilize in the near future, our ratings of all EU sovereigns will need to be revisited," it said in a weekly report. "We continue to expect to complete such a repositioning during the first quarter of 2012."

Fitch also said the summit did little to ease the pressure on euro zone sovereign debt, as leaders agreed on a gradualist approach that "imposes additional economic and financial costs compared with an immediate comprehensive solution."

"It means the crisis will continue at varying levels of intensity throughout 2012 and probably beyond, until the region is able to sustain a broad economic recovery," Fitch said in a statement.