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Moody’s warning fuels German resentment over euro bailouts

German Chancellor Angela Merkel gestures before a session of the Bundestag, the lower house of parliament.


The prospect of Europe's biggest economy losing its cherished triple-A credit status has unsettled Germans, already angry about footing the bill for bailouts, and triggered calls for an even tougher stance on Greece and other euro zone laggards.

While politicians and economists were at pains to argue that Moody's downward revision to Germany's credit rating outlook would have little immediate impact on borrowing costs, ordinary Germans said they were worried.

"If things pan out the way Moody's have predicted then we will have problems here with unemployment, if we lose confidence that things will get better, it'll mean big problems for the economy," said Memet Dogan, a 45-year-old transport worker near Berlin's Brandenburg Gate.

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Germany has been a bedrock of stability in the euro zone crisis with its bonds seen as a safe-haven from the region's troubles and investors paying to lend money to Berlin at recent debt auctions.

But Germany's strength means it has the role of regional paymaster and taxpayers are fed up that their hard-earned cash is going to support neighbours whom they view as profligate.

They oppose further bailouts and a poll for German TV released last month showed a hefty 83 per cent said Greece should quit the euro zone if it failed to abide to the conditions of its aid package.

Hans Michelbach, a senior member of Bavaria's Christian Social Union (CSU), sister party to Chancellor Angela Merkel's conservative Christian Democrats (CDU), described Moody's move as "a signal that even Germany's resilience is not unlimited."

"Germany has made a huge solidarity contribution to stabilize highly indebted euro states. Taking on a further burden will be difficult and hard to explain to citizens."

Polls show most voters back Ms. Merkel's tough approach towards bailouts, which has included imposing tough conditions in return for aid and resisting the mutualization of debt.

With fears that an agreed up to €100-billion bailout to prop up Spanish banks may not be enough, the Moody's warning – which came too late on Monday night for newspapers to publish the news – shows her room for manoeuvre at home is diminishing.

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"Opposition to additional commitments for rescue measures is likely to strengthen," said Berenberg Bank economist Christian Schulz, adding: "The so-far very small group of rebels in (Merkel's) coalition (for bailouts) may grow".

He added, however, that Germany's cost of borrowing is unlikely to rise because of the change in the ratings outlook as it is still viewed as a safe haven.

Rainer Bruederle, a senior member of the Free Democrats (FDP), who share power in Ms. Merkel's centre-right coalition, agreed investors would continue to have confidence in Germany.

"Moody's view is a bit short-termist, maybe even a bit short sighted," said Mr. Bruederle, arguing that with solid growth and a robust labour market, German fundamentals were still strong.

Many Germans placed the blame for a potential downgrade by Moody's firmly at Athens' door and saw it as a further reason for Greece to leave the currency union.

"I hope Greece exits the euro zone. We can't keep supporting them. Spain, Italy and Greece should never have entered the euro zone," said a 73-year-old retired construction engineer waiting for a bus in Berlin who declined to give his name.

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"Markets might suffer in the short term if Greece does leave but in the long term things would be fine in Germany. Right now only the tax payers are suffering," he said.

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