Malta was downgraded to A3 from A2 with negative outlook.

The adjustments were the following:

Austria: outlook on Aaa rating changed to negative

France: outlook on Aaa rating changed to negative

Italy: downgraded to A3 from A2, negative outlook

Malta: downgraded to A3 from A2, negative outlook

Portugal: downgraded to Ba3 from Ba2, negative outlook

Slovakia: downgraded to A2 from A1, negative outlook

Slovenia: downgraded to A2 from A1, negative outlook

Spain: downgraded to A3 from A1, negative outlook

United Kingdom: outlook on Aaa rating changed to negative

Moody's said the main reasons for the adjustments were  uncertainty over the euro area's prospects for institutional reform of its fiscal and economic framework and the resources that will be made available to deal with the crisis.

The ratings agency said the ratings of the following European sovereigns were seen as appropriately positioned: Denmark (Aaa), Finland (Aaa), Germany (Aaa), Luxembourg (Aaa), Netherlands (Aaa), Sweden (Aaa), Belgium (Aa3), Estonia (A1) and Ireland (Ba1).

Moody's review of Cyprus' Baa3 rating, as announced in November 2011, is ongoing, while the developing outlook on Greece's Ca rating remains appropriate as the rating agency awaits clarification on the country's debt restructuring.

Moody's has also downgraded the rating of Malta Freeport Co. to A3 from A2.

WHAT COULD MOVE THE RATING UP/DOWN

Moodys said downward pressure on the rating could develop if Malta’s economic growth prospects deteriorate significantly, thereby obstructing fiscal consolidation and leading to a significant further deterioration in
the sovereign’s key credit metrics.

The rating could also be downgraded if an intensification of the euro
area crisis were to result in materially higher cost or constrained funding conditions for the government.

A further deterioration of macroeconomic conditions in Europe, leading to material fiscal and debt
slippage in Malta, could also pressure the rating.

Conversely, the negative outlook on Malta’s sovereign rating would be changed to stable in the event of a sustained improvement in investor sentiment across the euro area.

"Although unlikely in the foreseeable future, the government’s ratings could move upward in the event of a significant improvement in the government’s balance sheet, leading to greater convergence with ‘A’ category medians," the ratings agency added.

"Substantial structural reforms focused on enhancing competitiveness and boosting potential output growth rates would also be credit-positive."

GOVERNMENT REACTION

The Maltese Finance Ministry in a reaction noted that Moody's had downgraded Malta's ratings because of the deteriorating financial and economic situation in Europe. The current situation was having an impact on investor confidence and Moody's had therefore revised growth prospects downwards.

The ministry said the slowdown in economic growth presented major challenges for financial sustainability and therefore strengthened the government's decision to rein in its spending and focus its investment on those economic sectors which created most jobs. 

It noted that Malta was one of only two countries to have reduced its deficit in 2010, at the height of the financial crisis, drawing praise from the EU, which lifted the excessive deficit procedure.

The government said it would continue to offer incentives to encourage investment and job creation, and it would continue to boost sectors such as tourism where the MTA had been given a bigger budget.