BERLIN, July 24: The eurozone crisis took a fresh turn for the worse on Tuesday after ratings agency Moody’s threatened to cut Germany’s coveted top credit rating amid fears the bloc’s difficulties could pull it apart.

The shock decision to slash the outlook of Germany, Europe’s top economy and paymaster, from “stable” to “negative” came as auditors arrived in debt-wracked Greece and Spain’s top finance official headed to Berlin for talks. The news pushed Spain’s borrowing costs above 7.5 per cent — well above the seven-per cent mark that forced others into bailouts — but European stocks rebounded slightly as positive Chinese data offset the Moody’s bombshell.

Moody’s said its decision was based on “rising uncertainty regarding the outcome of the euro area debt crisis (and the)... increased likelihood of Greece’s exit from the euro area.” Even if Greece manages to stay in the 17-member bloc, Moody’s said there was “an increasing likelihood that greater collective support for other euro area sovereigns, most notably Spain and Italy, will be required.”

Germany’s top rating could be cut, Moody’s said, if Berlin needed to shore up its banks as a result of the crisis, if the bloc were to split or Germany were to see its own borrowing costs — currently at record lows — rise.

Policymakers raced to dismiss the action. The head of the Eurogroup of eurozone finance ministers, Jean-Claude Juncker, immediately stressed a “strong commitment” to the bloc’s stability after the warning, which also hit the Netherlands and his native Luxembourg.

Moody’s latest decision “confirms the very strong rating enjoyed by a number of euro area member states, as supported by the sound fundamentals which these (three) and other euro area countries continue to enjoy,” said Juncker.

Germany’s finance ministry was even more dismissive, saying in a statement issued late on Monday: “The eurozone risks that Moody’s mentions are not new. Moody’s assessment is derived mainly from short-term risks, while the longer-term outlook for stabilisation goes unmentioned.... The very sound state of Germany’s own economy and public finances remains unchanged,” it said.—AFP