Analysis: Ditch the assumption developed economies are safe

Tue Jan 17, 2012 7:40am EST
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Peter Apps, Political Risk Correspondent

LONDON (Reuters) - The downgrade of much of Europe's credit ratings demonstrates in perhaps the bluntest terms so far the collapse of any lingering -- if lazy -- assumptions that developed states are somehow "safer" than emerging counterparts.

In the years to come, investors may make much harder-nosed assessments of how much to lend Western nations and how cheaply to do it, scrutinizing their economics, demographics and particularly politics much more sharply.

The long-term financial and geopolitical implications may be massive, making it harder for the world's richest states to find the funds to bail out other countries or their own banks -- or to meet the ever growing cost of an ageing population.

"The point here is that developed market countries are decreasingly creditworthy -- and the higher pension burden... suggest this will only get worse in coming decades," wrote Charles Robertson, chief economist of Renaissance Capital. "Emerging markets meanwhile (are) in a far healthier position and most emerging market countries seem on an upward direction over the long term."

That growing belief itself, he says, accelerates the process. With ever more pension funds and other investors allocating more to emerging market debt and less to the developed world, it could move ever faster.

On Friday, ratings agency Standard and Poor's cut its ratings of nine euro zone countries, stripping France and Austria of their coveted AAA status, downgrading Italy to the same BBB + level as Kazakhstan. Portugal followed Greece in being relegated to "junk" status -- its BB rating the now same as that of the Philippines and Turkey -- although it remains well above Athens' dire CC, the worst of any rated state.

As with S&P's August downgrade of the United States, the move had in many ways been long presaged by the markets.

POLITICAL RISK   Continued...