Luxembourg's 'AAA/A-1+' Ratings Affirmed; Off Watch Neg, Outlook Negative
|Publication date: 13-Jan-2012 22:03:38 GMT|
- We are affirming the 'AAA' long-term and 'A-1+' short-term sovereign credit ratings on Luxembourg.
- The outlook on the long-term rating is negative.
LONDON (Standard & Poor's) Jan. 13, 2012--Standard & Poor's Ratings Services today affirmed its 'AAA' long-term and 'A-1+' short-term sovereign credit ratings on the Grand Duchy of Luxembourg. At the same time, we removed the long-term rating on Luxembourg from CreditWatch with negative implications, where it was placed on Dec. 5, 2011. The outlook on the long-term rating is negative. Our transfer and convertibility (T&C) assessment for Luxembourg, as for all European Economic and Monetary Union (eurozone) members, is 'AAA', reflecting our view that the likelihood of the European Central Bank restricting nonsovereign access to foreign currency needed for debt service is extremely low. This reflects the full and open access to foreign currency that holders of euro currently enjoy and which we expect to remain the case in the foreseeable future. The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements from policymakers lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems. In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those eurozone sovereigns subjected to heightened market pressures. We also believe that the agreement is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the eurozone's core and the so-called "periphery." As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers' rising concerns about job security and disposable incomes, eroding national tax revenues. Accordingly, in line with our published sovereign criteria, we have adjusted downward the political score we assign to the Grand Duchy of Luxembourg (see " Sovereign Government Rating Methodology And Assumptions," published on June 30, 2011). This is a reflection of our view that the effectiveness, stability, and predictability of European policymaking and political institutions (with which Luxembourg is closely integrated) have not been as strong as we believe are called for by the severity of a broadening and deepening financial crisis in the eurozone. In our baseline scenario, we expect much lower GDP growth of 0.2% in 2012 and, given the Luxembourg economy's dependence on the large financial sector, we believe that growth prospects for the longer term will also be subdued. We anticipate that this could put further pressure on public finances. However, the affirmation reflects our opinion that Luxembourg's underlying strengths--its stable political environment, demonstrated control over public finances, and very strong government balance sheet (net general government assets are estimated is nearly 20% of GDP in 2012)--will be sufficient to absorb external stress emanating from the current eurozone crisis at the current rating level. In our opinion, Luxembourg has the fiscal capacity and political backing to implement measures that would help mitigate the impact of external shocks. The negative outlook indicates that we believe that there is at least a one-in-three chance that we will lower the rating in 2012 or 2013. We may lower the rating if we consider that Luxembourg financial-services-based business model could be exposed to higher risks, and a significant deterioration in overall operating volumes in a more-difficult capital market environment, which would reduce longer-term growth prospects. We believe that the authorities will support systemically important institutions, including foreign-owned ones when they have domestic activities, as they have done in the past. Any need to inject capital into the financial sector could reduce the stock of government assets and lead us to lower the fiscal score. The financial health of other foreign-owned financial institutions is also important to Luxembourg's business model and longer-term growth potential, even though we believe that they would be supported by their parents in case of stress. We could revise our outlook to stable if we see the risks to Luxembourg's business model abate. In our opinion, these risks include changing legal conditions around advantageous tax regimes or deterioration in the profitability, performance, or activity level of the financial services sector. RELATED CRITERIA AND RESEARCH All articles listed below are available on RatingsDirect on the Global Credit Portal.
- Sovereign Government Rating Methodology And Assumptions, June 30, 2011
- Criteria For Determining Transfer And Convertibility Assessments, May 18, 2009
- Standard & Poor's Puts Ratings On Eurozone Sovereigns On CreditWatch With Negative Implications, Dec. 5, 2011
- Trade Imbalances In The Eurozone Distort Growth For Both Creditors And Debtors, Says Report, Dec. 1, 2011
- Who Will Solve The Debt Crisis?, Nov. 10, 2011
TELECONFERENCE INFORMATION Standard & Poor's will hold a teleconference on Saturday Jan. 14, 2012 at 3:00 PM UK time. The teleconference can be accessed live or via replay and by phone or audio internet streaming The call will begin promptly at 3:00 p.m. TELECONFERENCE DETAILS Passcode: 2705831 For security reasons, the passcode will be required to join the call. DIAL IN NUMBERS: Country Toll Numbers Freephone/Toll Free Number AUSTRIA 43-1-92-80-003 0800-677-861 BELGIUM 32-1-150-0312 0800-4-9471 DENMARK 45-7014-0239 8088-2100 ESTONIA 800-011-1121 FINLAND 106-33-149 0800-1-12771 FRANCE 33-1-70-75-25-35 080-563-9909 GERMANY 49-69-2222-3198 0800-101-6627 GREECE 30-80-1-100-0674 00800-12-6609 IRELAND 353-1-247-5274 1800-992-870 ITALY 39-02-3601-0953 800-985-849 LUXEMBOURG 352-27-000-1351 8002-9058 NETHERLANDS 31-20-718-8530 0800-023-4392 PORTUGAL 8008-12439 SLOVAK REPUBLIC 421-2-322-422-16 SPAIN 34-91-414-40-78 800-098-194 UNITED KINGDOM 44-20-7950-6551 0800-279-3590 USA 1-210-795-1143 866-297-1588 TELECONFERENCE REPLAY INFORMATION: Call notes: This call is to be recorded for Instant Replay purposes UK TOLL #: +44-20-7108-6279 UK TOLL FREE #: 0800-376-9027 The instant replay will start at: Jan. 14, 2012 5:30pm UKT The instant replay will end at: Feb-14-2012 11:59pm UKT Passcode for replay: 7498 Restrictions may exist when accessing freephone/toll free numbers using a mobile telephone. AUDIO STREAMING AND AUDIO REPLAY INFORMATION: To join the event: URL: https://e-meetings.verizonbusiness.com Conference number: 1297498 Passcode: 2705831 To access the Audio Replay of this call, all parties can: 1. Go to the URL listed above. 2. Choose Audio Streaming under Join Events. 3. Enter the conference number and passcode. (Note that if this is a recurring event, multiple dates may be listed.) Replays are available for 30 days after the live event.
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|Primary Credit Analysts:||Frank Gill, London (44) 20-7176-7129;|
|Moritz Kraemer, Frankfurt (49) 69-33-99-9249;|
|Additional Contact:||Sovereign Ratings;|
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