Moody's cuts AAA rating of ESM rescue fund

Euro notes - file pic The European Stability Mechanism (ESM) was launched in October as a permanent agency

Moody's has cut the triple-A rating of the European Stability Mechanism (ESM) euro rescue fund by one notch and given it a negative outlook.

It follows a downgrade earlier this month of key ESM-backer France.

Moody's also cut rating of the mechanism's predecessor, the European Financial Stability Facility (EFSF)

Managing director of the ESM and EFSF chief executive, Klaus Regling, described the ratings agency's decision "difficult to comprehend".

The largest backer of the two schemes, Germany, remains at the top-level of Aaa.

Moody's said its ESM decision was a consequence of its earlier French downgrade, namely that it "reflects the rating agency's view that there has been a marginal diminution in the certainty that the sovereign will fulfil its financial obligations" including its commitment to support the ESM.

It put the ESM's new rating at Aa1, and the EFSF to a "provisional" Aa1 from provisional Aaa.

In a statement, Mr Regling was critical of Moody's approach, which "does not sufficiently acknowledge ESM's exceptionally strong institutional framework, political commitment and capital structure."

The European Stability Mechanism (ESM) was launched in October as a permanent agency, based in Luxembourg.

From 2014 it will have up to 500bn euros (£405bn; $650bn) to help countries in difficulty.

The rescue fund is available to the 17 eurozone countries - but loans will only be granted under strict conditions, demanding that countries in trouble undertake budget reforms.

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