Wall Street Journal
October 21, 2011
Government finances have been stretched to the limit. A new recession in Europe could lead to downgrades for Italy, Ireland, Spain, Portugal—and France, which would lose its triple-A rating, Standard & Poor's warns. Yet the currency bloc isn't alone. The U.S. has been downgraded, the U.K.'s rating has been questioned and Japan was cut from triple-A over a decade ago. If the crisis deepens, investors might just have to get used to more double-A sovereigns.
The problem faced is that the gap between triple-A and double-A is at the same time both tiny and enormous. For sovereigns, the gap is zero in terms of recent historical default rates. But a downgrade can still have an effect. It implies a shift from risk-free to measurable, albeit small risk. Some investors will only buy triple-A paper. And it can have knock-on effects on other borrowers, raising financing costs across an economy.
More
No comments:
Post a Comment