Ratings agency Moody's announced a downgrade Friday of the continent's main bailout vehicle, the European Stability Mechanism, knocking it one notch from prized Aaa status to Aa1.


Moody's said the moves were driven by its downgrade of France earlier this month from Aaa to Aa1. France is the second-largest contributor to the two bailout vehicles after Germany, kicking in roughly 20% of the funding for each. Moody's said there was "a high correlation" between the creditworthiness of the bailout funds and that of their largest contributors.


The ESM, which was finalized in October, is a bailout fund designed to have a lending capacity of €500 billion that can issue bonds and also receives funding from European member states. It was conceived as an eventual replacement for the European Financial Stability Facility, which has backed bailouts for Greece, Portugal and Ireland.

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