EUROPE - Germany will remain the safest haven for investors, even if ratings agencies were to downgrade the country from its current AAA rating, Mercer has said.

Speaking after Moody's put Germany, the Netherlands and Luxembourg on negative outlook, leaving Finland as the euro-zone's sole remaining stable AAA country, Dennis van Ek, principal in the consultant's Amsterdam office, noted that a number of local asset managers had "proactively" modified their former AAA euro-zone treasury mandates to be core products instead.

He said commodity-backed currencies and those supported by gold reserves - such as the Swiss franc - were of interest to pension investors.

Van Ek added that Germany would nonetheless remain the benchmark of euro-zone sovereigns, with investors needing to find a home for funds.

"They will remain to be biased towards the safest bond in the euro-zone," he said.

He noted that a number of the safe havens that remained outside the euro-zone, including AAA-rated Australia, Canada and Norway, all benefitted from being strong commodity-backed currencies.

With regard to the relative yield change, Germany will still be the safest in the euro-zone even if it went to AA or A - the money has to go somewhere, he said. 

"Currently, pension funds are investing in the commodity currencies, the fractional gold currency of Swiss franc and US dollar, the global reserve currency," he said.

"Investors are banking that these currencies may prove to be around longer than the euro will be."

He said it was hard to predict how low the yields would go, as it depended on which of the three potential scenarios - the euro-zone 'muddling through', closer fiscal and political integration or the single currency's disintegration - coming to fruition.

However, he said a full sovereign downgrade of the euro's largest economy and its neighbour would obviously impact the European Financial Stability Mechanism - with the bailout fund today itself put on negative watch, having previously only received a provisional AAA rating from Moody's.

"If there will be a full downgrade of Germany and the Netherlands, then the whole guarantee system that is in place will be in jeopardy," he said. "If that were to happen, then you could get an event risk."