Dr. Christian Schulz, Senior Economist at Berenberg Bank, on EU outlook cut by Moody's

Technically it is justified, because if components of the European Union, including the most important and healthiest economies such as Germany, the U.K., and the Netherlands get a negative outlook attached to their triple A rating, then it is logical that the EU will also get such a negative outlook. Thus, from the technical point of view I can understand it.

As the EU as a borrower is certainly not that relevant in the Euro crisis, Moody's decision is more of a signal and political statement than something that has a material impact on markets at the moment. Thus, I would not exaggerate the significance of this.

The EU as a borrower is insignificant in the Euro crisis. For the Euro crisis the relevant bodies would be the EFSF, the rescue fund, or in the future the ESM, and of course individual countries such as Germany. If they were downgraded, that would be a much stronger impact clearly. But the EU itself does not really play much of a role. That is why markets are shrugging that off.

I think it very much depends on how long the Euro crisis will last, and in particular how long the recession will last in Europe. Normally, when a country is falling to longer-term recession, then debt sustainability becomes weaker, so the country can afford less debt and that means that a credit rating goes down. In the Euro crisis of course this is true for the seven European countries. But because of the increase, sharing of debt that we have because of the rescue packages it also affects central European countries such as Germany. Hence, if the recession and Euro crisis last much longer, then I would expect more downgrade to come. However, if the ECB's action this week and the next month are enough to stop the crisis and Europe slowly emerges from the recession, then I think eventually the cycle of downgrades will come to an end.