Moody's downgrades eurozone bailout fund

June 17, 2005 file photo shows European Council building reflected in photograph of EU flag on wall of European Council building, in Brussels. EU won 2012 Nobel Peace Prize. AP Photo/Michel Euler, File

BERLIN Rating agency Moody's Investors Service has stripped the eurozone's new $615 billion bailout fund of a top credit rating.

Moody's announced on Friday it downgraded the long-term debt rating of European Stability Mechanism (ESM) from AAA to Aa1. It maintains a negative outlook.

The agency said its decision was driven by its earlier downgrade of French government bonds.

"In the very unlikely event of France being unable to fulfil its obligations to the ESM, there is a reasonable probability that other non-Aaa supporters would not be able to do so either," Moody's said.

France, which has the second largest economy of the 17 countries in the eurozone, guarantees a sizable part of the ESM's loan capacity.

ESM chief Klaus Regling called the decision "difficult to understand," saying it does "not sufficiently acknowledge ESM's exceptionally strong institutional framework, political commitment and capital structure."

The ESM - one of the 17-nation eurozone's key tools in fighting off its debt crisis - continues to be assigned a top-notch long-term rating by Fitch. Moody's and Fitch also see the fund's short-term credit rating as AAA.

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