Ratings agency Moody's has announced it maintains the European Union's AAA rating, but downgrades outlook to negative. According to Moody's: "Change to negative reflects negatives outlook to AAA svr rating of key contrib to EU budget. Germany, France, UK and Netherlands. Outlook may back to stable if key contrib country back to stable."
Moody's added: "It's reasonable to assume the same probability of default by EU on its debt as the highest rated key members probability of default." The agency also changed its outlook on the provisional (P) AAA rating of the EU’s medium-term note program from stable to negative. Negative risk include a deterioration in the creditworthiness of EU member states.
ECB's Draghi hints at bond purchases
The European Central Bank President Mario Draghi said Monday that purchases of sovereign bonds with a maturity of up to 3-years could not be considered as state aid and would not breach the central bank mandate, Reuters reported Monday citing a number of European lawmakers.
Draghi was speaking before the Economic and Monetary Affairs committee of the EU parliament at a closed-door session on Monday.
"The ECB's purchasing of bonds with a maturity of up to three-years would not be state financing," Draghi was quoted as saying by Parliament vice president Mario Mauro and other EU lawmakers.
ECB President is expected on September 6 to provide more clarity about a new sovereign bond purchase program, which may include a cap on yields and/or target on spreads to help indebted euro zone members.
Spain meets conditions for bailout - Rajoy
Spain will consider the prospects of applying for a fresh aid program aka bailout, aside from the recently approved 100 billion banking sector rescue package, as long as no new conditions are asked, Prime Minister Mariano Rajoy said in an interview published in European newspapers on Sunday.
Rajoy, who remains adamant on giving up further sovereignty powers to European authorities, demanded further details on the ECB bond buying program before making any move on whether to proceed with a request or continue to stay pad. As quoted by Reuters via Spanish daily ABC regarding seeking more aid for Spain, "if I believe it is good for Europe as a whole, for the euro, and for Spain, I will do it, and if not, not" Rajoy said.
Spanish 'Banco Malo' is ready, ECB's resignation rumours move market
The Spanish government has approved a new finance reform on Friday, allowing for the creation of a “bad bank,” where other banks' toxic assets will be directed.
Deputy Prime Minister Soraya Sáenz de Santamaría and Finance Minister Luis de Guindos explained that the bad bank will be launched at the end of November or beginning of December and will function for 10 to 15 years, purchasing toxic property assets at an “adequate” price in order to give profits in the long-term.
They also assured that it will not cost taxpayers anything, and that the financial burden of the reform will be shifted to shareholders' and bondholders' shoulders.
At the moment, Spain's Bankia will receive capital injection immediately, even before the money that is coming from the EuroZone.
FROB, the Spain's bank rescue fund, announced Friday an immediate capital injection into troubled Bankia, which was described an "advance on European aid", although the agency declined to divulge the amount.
Bankia reported a €4.44 billion net loss in first half of 2012. Bankia has consumed almost €30 billion in government funds thus far.
S&P downgrades Spain's Catalonia debt to BB
Standard & Poor's Ratings Services lowered its rating on the Spanish Autonomous Community of Catalonia to 'BB' from 'BBB-', while the outlook remains negative.
"The downgrade of Catalonia follows the nascent tensions between the region and the central government, and the potential negative impact we believe these tensions may have on Catalonia's ability to secure external funding", S&P said in a statement.
At the end of July 2012, Catalonia requested that the Spanish central government modify the financial framework under which it operates. "We believe this proposal could create tensions with the central government, on which Catalonia crucially depends to access liquidity, at least in 2012-2013", the agency added.
Rumors of Buba head Weidmann resignation shake markets
Early on Friday, German newspaper Bild reported that the Bundesbank president Jens Weidmann is considering to step down, due to the disagreement over ECB's bond purchase program, which he perceives as “too close to state financing via the money press.”
ECB chief Mario Draghi, who has canceled his speech at the Jackson Hole central banker's summit this weekend, is busy preparing a bond buying scheme aimed at bringing down yields of Eurozone peripheral countries and expected to be presented on September 6. The opposition towards the program , expressed by Weidmann means that Draghi might opt for making it radically conditional, risking to diminish its impact considerably.
Bundesbank spokesman declined to comment on the news.
On the other side of the Atlantic, Federal Reserve Chairman Ben Bernanke sent a message for European leaders in the mark of the Jackson Hole symposium: "I urge our European colleagues to press ahead with policy initiatives to resolve the crisis".