10.09.2012

By Simon Miller

Uncertainties remain over the eurozone, despite the announcement of a unlimited bond purchase plan according to Moody's Investor Services.

However, despite a number of credit positives in the outright monetary transactions announced last week, the rating agency warned that there were still questions to be asked of the European Central Bank (ECB).

Writing in its weekly credit outlook, Moody's chief credit officer Alastair Wilson and senior vice president Colin Ellis, said that the ECB offered "no insight into what short-term yields it thinks are appropriate in each country of what magnitude of purchases may be needed".

They added: "The decision to provide few details very likely partly reflects continued divisions within the ECB on its role in resolving the crisis. The ECB may hope that the announcement alone will sufficiently reassure investors and remove the need for substantial purchases, but the evolution of the crisis suggests this is unlikely and that the markets will test the ECB’s resolve."

Moody's also questioned how the ECB would overcome any internal tensions should significant purchases be required over a sustained period.

"It is also not clear whether Spain (Baa3 review for downgrade) or Italy (Baa2 negative) intend to apply for such programmes, or for how long the amounts available under precautionary programmes facilities would sustain each country if they did," the analysts added.

The report concluded: "To the extent that investors believe that euro area authorities will use the time bought to push through domestic fiscal and structural reforms and broader changes to the euro area fiscal and economic governance framework, OMTs will support continued access to debt markets by peripheral sovereigns and banks, a credit positive. But ultimate responsibility for crisis resolution still lies with euro area governments."