Posted Monday, July 23, 2012, at 5:25 PM
In what I can only imagine was a fit of insanity, Moody's has decided to lower the outlook for Germany, the Netherlands, and Luxembourg and leave Finland—plucky little Finland—as the sole eurozone member with a stable triple-A rating. Why?
Well, they gave Germany a negative outlook because of "rising uncertainty regarding the outcome of the euro area debt crisis" and the "rising contingent liabilities" that the Germans are taking on as a result of this. But of course Finland is also affected by that. But Moody's says it's fine because of "its small and domestically oriented banking system, its limited exposure to, and therefore relative insulation from, the euro area in terms of trade, and its attempts to collateralise its euro area sovereign support together provide strong buffers which differentiate it from the other Aaas."
Try to sketch out a situation in which Germany is defaulting on its debts but Finland isn't because Finland has "collateral" from Spain.
Are they marching an army across the entirety of Germany and France to collect this debt? No. No way. I don't think there's any real credit risk around Finland, but unless something wild changes in the realm of geopolitics, Finland will always be slightly riskier than Germany due to the fact that the Russians might invade and conquer Finland. Is that likely? No. But it's way more likely than Finland coercing Spain and Italy into coughing up collateral in the context of a total meltdown of the eurozone. This is just a ludicrous read of the situation.
The actually interesting question in Europe is France, whose financial markets are being treated like a poor man's Germany but analytically look more like a rich man's Italy.