Moody's Lowers Downgrade Boom on Europe

NEW YORK (TheStreet) -- Maybe Europe isn't in the clear after all.

The major U.S. equity indices rallied on Monday following news that Greece had reached an agreement on austerity measures that should satisfy Eurozone leaders and lead to the release of another round of bailout money, but the idea that contagion fears are subsiding in the old continent took a hit after the close when Moody's Investor Service unleashed a round of sovereign debt downgrades, including a two-notch drop for Spain.

The credit ratings agency said the moves "reflect their susceptibility to the growing financial and macroeconomic risks emanating from the euro area crisis and how these risks exacerbate the affected countries' own specific challenges."

Specifically, Moody's lowered its rating on Italy to A3 from A2 with a negative outlook; Spain to A3 from A1 with a negative outlook; Portugal to BaA3 from BaA2 with a negative outlook; Malta to A3 from A2 with a negative outlook; and Slovenia and Slovkaia both to A2 from A1 with a negative outlook.

The agency also brought down its outlook to negative for the triple-A ratings of France, the United Kingdom and Austria.

Moody's cited "the uncertainty over (i) the euro area's prospects for institutional reform of its fiscal and economic framework and (ii) the resources that will be made available to deal with the crisis" for the move, as well as the "increasingly weak macroeconomic prospects" for the region.

It also said it expects market confidence in Europe is "likely to remain fragile, with a high potential for further shocks to funding conditions for stressed sovereigns and banks."

Moody's made it clear that it believes Europe's leaders working to get a handle on the debt problems of the region have a tough job, and said Monday's moves weren't as negative as they could have been because of the policies already being implemented, such as the long-term refinancing operation undertaken in December.