Oct. 22 (Bloomberg) -- European countries’ rising debt won’t trigger across-the-board credit-rating downgrades because countries are measured relative to each other, Moody’s Investors Service said.

The worst recession in six decades and the stimulus measures used to moderate its effects are going to drive debt levels up in the euro zone and in the European Union over the next two years, the European Commission predicts.

“We are doing relative ranking of sovereign risk within peer groups,” Alexander Kockerbeck, a senior European analyst for Moody’s, said in an interview. “Part of the quality of an AAA country is to be able to absorb a shock of this kind.”

Moody’s ranks Germany and France among the countries with the highest credit ratings. European governments spent billions of euros to fight the region’s worst recession since World War II. As a result, the commission forecasts that euro-area debt will rise to 77.7 percent this year from 69.3 percent, and that it would advance to 83.8 percent in 2010.

Debt sustainability will continue to be monitored country- by-country, Kockerbeck said. Moody’s downgraded Ireland’s top credit rating in July, cutting it one step to Aa1.

While a temporary debt expansion should be expected, countries need to get their public finances under control soon because of the region’s ageing population, Kockerbeck said.

Ageing Populations

“The new and main challenge is to get public finances in order as soon as possible after the crisis, and to prepare the social security system for an ageing population,” Kockerbeck said. “The first strong signs of” the ageing population straining pension systems in Europe “will kick in between 2010 and 2015,” he said.

Earlier this month the commission stopped short of urging an end to stimulus spending while cautioning about the consequences of not reining in spending as quickly as possible once the recovery gains traction.

“Rising government expenditure and prospects of an ever- increasing debt would be an obstacle to a sustained and long- lasting recovery and balanced economic growth,” the commission said in its Oct. 14 “Sustainability Report.”

While the commission predicts the economy of the 16 nations using the euro returned to growth in the third quarter, rising unemployment threatens to curb consumer spending. EU finance ministers signaled earlier this month that they may not withdraw stimulus measures before 2011.

The International Monetary Fund said on Oct. 3 that the euro-region economy including Germany, France and Italy will shrink 4.2 percent this year and expand 0.3 percent in 2010. The U.K. economy may contract 4.4 percent before expanding 0.9 percent in 2010, the Washington-based IMF said. Europe’s bloc of emerging nations, such as Poland, will experience a contraction of 6.6 percent this year, the IMF projected.

To contact the reporter on this story: Steve Scherer in Rome at scherer@bloomberg.net

Last Updated: October 22, 2009 02:49 EDT