Moody's may up seven new European Union Exchange Rate Mechanism members

Moody's Investors Service said that in light of the positive credit implications associated with participation in the European Union's Exchange Rate Mechanism (ERM2), it has issued rating revisions for seven of the countries poised to join the European Monetary Union (EMU).

Specifically, Moody's said it placed under review for upgrade the foreign-currency ceilings and government bond ratings of Slovakia (A2) and Lithuania (A3) and assigned a positive outlook to these ratings for Cyprus (A2), Estonia (A1), Latvia (A2), Malta (A3) and Slovenia (Aa3).

Moody's said that, thanks to a benign international financial environment and adequate policy discipline by the governments involved, the ERM2 currencies have remained stable and indicate that entry into the EMU, which could take place as early as 2007 for the first entrants, seems likely.

The eventual adoption of the euro by the seven countries will mean the elimination of currency transfer risk that will result in an upward adjustment of their country ceiling to Aaa at the time of entry into the Eurozone, the agency added.

While some of the remaining uncertainties, including macroeconomic imbalances and the exact date of euro adoption, could create financial market tension or volatility, Moody's said it expects that the prospect of entry into the Eurozone is a deterrent to destabilizing capital flows in the ERM2 countries.

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