Moody's downgrades rescue funds

The eurozone was dealt a fresh blow as Moody’s Investors Service downgraded the region’s rescue funds and unemployment hit a new record high.

The ratings agency cut its rating on the European Stability Mechanism to AA1 from AAA and maintained a negative outlook. It also lowered the European Financial Stability Facility’s provisional rating to (P)AA1 from (P)AAA.

Moody’s said its decision was driven by its recent downgrade of France, because the credit risk and ratings of the rescue funds were “closely aligned to those of its strongest supporters”.

Klaus Regling, managing director of the ESM and chief executive of EFSF, said Moody’s decision was “difficult to understand.” He added: “We disagree with the rating agency’s approach which does not sufficiently acknowledge ESM’s exceptionally strong institutional framework, political commitment and capital structure.”

It came as the EU’s statistics office said eurozone unemployment rose to 11.7pc in October from 11.6pc in September.

Mario Draghi, the European Central Bank president, warned that the eurozone would not begin to emerge from the crisis until late next year.

“We have not yet emerged from the crisis. The recovery for most of the eurozone will certainly begin in the second half of 2013,” he said in a radio interview .

“The crisis has shown that we were living in a fairy world,” he added at a conference later in the day, in reference to the high debt levels among some member states, weak banks, and poor policy co-ordination.

The latest jobless figures underlined the scale of the region’s challenges, with a 173,000 jump in October taking the total number of people out of work in the eurozone to 18.7m.

Spain has the highest rate of unemployment among the region’s 17 members, with the rate rising to 26.2pc in October from 25.8pc in September. More than half of Spain’s young people are unemployed, at 55.9pc. Youth unemployment in the eurozone overall was 23.9pc in October.

Greece is closely behind Spain with a jobless rate of 25.4pc. The lowest level of unemployment is Austria at 4.3pc, followed by Luxembourg at 5.1pc and Germany at 5.4pc. By comparison, Britain’s unemployment rate was 7.8pc in September, according to the latest data.

Graeme Leach, the chief economist at the Institute of Directors, said the eurozone jobless rise was “extremely bad news” with negative implications for Britain. “It is clear that the instability in the eurozone is not going away, which will impact negatively on the UK.”

Meanwhile, the German parliament approved a debt deal for Greece, paving the way for a further €44bn (£36bn) of rescue money.

It comes amid speculation that eurozone governments will eventually have to write off much of their Greek debts, although the German finance minister, Wolfgang Schaeuble, rejected this. “If we say the debts will be written off, [Greece’s] willingness to make savings is correspondingly weakened,” he said.