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Entries in Downgrade (2)

Wednesday
Jan182012

Which European Countries Will Suffer Credit Downgrades Next?

Scott Eells/Bloomberg via Getty Images(NEW YORK) -- Nine European nations, including France and Italy, recently have seen their credit ratings cut.

Greece's rating was reduced by Standard & Poor's to "CC" -- junk grade -- the lowest given by the rating service to any of the nations that it tracks.  Both S&P and competing credit-rater Fitch say a Greek default now looks likely.

S&P's ratings for Cyprus, Portugal and Spain, and Italy each fell two notches; those for Austria, France, Malta, Slovakia and Slovenia fell by one.  The company said in a Jan. 13 statement that its outlook on all but two of the 16 eurozone sovereigns is now negative.

In all the eurozone, only Germany, Europe's number one economy, retains an AAA rating.

Not everyone, however, is trembling in their boots.  French President Nicholas Sarkozy, for example, brushed off his country's downgrade and dismissed it as irrelevant, telling reporters, "At the core, my conviction is that it changes nothing."

World markets seemed to share his view.  Investor demand for an auction of French debt Monday was solid.  And around the world, markets remained mostly calm -- none dropped precipitously.

Yet investors, especially anyone exposed to sovereign debt, have got to be asking themselves: What nation will be next to be downgraded?  Which, besides Greece, might actually default?

Were Montenegro, say, to default, the damage to the U.S. economy would be small, if any.  But the default of a major U.S. trading partner in Western Europe would be another matter.

The prediction of Peter Morici, a professor at the University of Maryland's Smith School of Business, is bleak.  In his scenario, the euro will collapse, "and chaos will follow."

Such chaos will include defaults by other eurozone governments besides Greece.  As European sovereigns return to their traditional currencies, they will remark their sovereign debt.  The value of European government bonds denominated in dollars will plummet, and any investors left holding such bonds would be better off, quoting Morici, "holding Confederate currency for its collector value."

Morici expects Western Europe to suffer further downgrades and other nations besides Greece to default.  Of S&P's most recent cuts, he says, "They got France right, but they got Germany wrong."

By that he means that France deserved the lower rating, but that Germany should have been cut, too.

As for Italy, Morici says, it, too, is sicker than its newly downgraded rating (BBB+) would suggest.

S&P's "negative" outlook for Italy means there is a 1-in-3 chance the country's debt will be downgraded further in the next three months.

Copyright 2012 ABC News Radio

Tuesday
Aug232011

Moody's Issues Credit Rating Downgrade for Japan

Comstock Images/Thinkstock(TOKYO) -- Japan is the latest country to be hit with a major debt downgrade.  Moody's has marked down the country's credit rating from Aa2 to Aa3, according to The Wall Street Journal.  

Despite a stable outlook, Moody's said "large budget deficits and the build-up in Japanese government debt since the 2009 global recession" was the reason for the downgrade.

Japan has suffered its share of troubles in recent months.  After coming through a devastating earthquake, tsunami and a nuclear crisis, the country must now work quickly to repair its debt woes.  But first, Japan will choose a new prime minister -- several others in the role failed to last more than a year, WSJ reports.

With the country's debt equal to more than 200 percent of the annual GDP, Japan's financial problems are far worse than the U.S., which is also facing scrutiny from ratings companies.  The U.S. debt is an estimated 75 percent of the GDP.

Japanese Finance Minister Yoshihiko Noda, a leading candidate to replace Prime Minister Naoto Kan, has expressed the need for tougher ways to cut down the country's debt.  Other candidates are not as clear about their expectations, WSJ reports.

There is uncertainty about whether or not Japan will raise taxes -- a move some Japanese leaders see as a possible threat to economic recovery.

Copyright 2011 ABC News Radio







ABC News Radio