Moody’s teaches France, Austria and the UK that Debt Matters

Posted by PITHOCRATES - February 18th, 2012

Week in Review

Things are not well in the Eurozone.  After a series of credit rating downgrades Moody’s warns France and Austria.  And even one country outside the Eurozone.  The UK (see Moody’s warns UK, France, Austria over AAA rating by Rodrigo Campos and Walter Brandimarte posted 2/14/2012 on Reuters).

Rating agency Moody’s warned it may cut the triple-A ratings of France, Britain and Austria…

Moody’s move was less aggressive than rival agency Standard & Poor’s, but its action puts London’s prized top credit rating in jeopardy for the first time…

Germany’s top-tier rating was described as “appropriate” by Moody’s, and it affirmed the triple-A rating on the euro zone’s bailout fund, the European Financial Stability Fund (EFSF)…

The precarious state of European sovereign finances was underlined on Monday, when the head if [sic]China’s sovereign wealth fund brushed aside an appeal from German Chancellor Angela Merkel to buy European government debt, saying such bonds were “difficult” for long-term investors…

A retreat from European government debt has already been boosting relatively high-yielding Australian and New Zealand debt, as cashed-up Asian sovereign wealth funds and other major bond investors look for safe havens to diversify their holdings.

The two big countries of the Eurozone are Germany and France.  If they go so does the Euro.  So far Germany retains its triple-A rating.  But France may lose theirs.  Even the UK may lose its coveted triple-A rating for the first time.  Just like the U.S. did last year.  Neither of which is in the Eurozone.

Things are not well in the world of government finance.  Even the Chinese are refusing to buy European debt.  And they’re not the only ones.  And it’s because of the debt levels.  Australia and New Zealand debt is closer to 30% of GDP.  Compared to the European Union.  Which is closer to 80%.  Simply put, debt matters.  And the more you have the less perfect your credit rating.  And the lower your credit rating the higher the interest rates you must pay to sell your government bonds.  If you can sell them.

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