Moody’s – Fitch – S&P
Which one, will it be?
The dreaded words “downgrade” – that one word will repeat itself with resounding repetitivity.
Currently we have Japan downgraded – France downgraded – then the ‘calendar of events’ to release further downgrades indicates that Austria will definitely come under the spotlight – this in light of the Heta Bank deferred liquidated debt and their High Court ruling – on the responsibility of the Austrian Government to the minority bond holders.
These bond holders rights (now direct liabilities of the Austrian Government) cannot be legislated away and therefore – these Rating Agencies must take this into context when evaluating Austria’s creditworthiness.
Downgraded to BBB or junk status?
Good question – if one looks at the recent reviews of both Japan and France – a lot of debt – very little productivity.
So expect for all European countries :-
1. The continuing weakness in …….( insert a Country, any Country) . . medium-term growth outlook, which Moody’s / Fitch / S&P (delete whichever does not apply) expects will extend through the remainder of this decade; and
2. The challenges that low growth, coupled with institutional and political constraints, poses for the material reduction in the government’s high debt burden over the remainder of this decade.
Whilst all European countries are in a debt bind – to which one ‘junk’ status?
To which one will a re-evaluation create the necessary conditions to default on their debt?
To my mind Austria – after listening to Merv last night I may have been a tad ambitious with the UK – the stiff upper lip, buckle down and defend the pride of a nation will come through.
We shall see – we shall see.