The Globe And Mail

Governments warned over debts
The Globe and Mail

International ratings agencies are warning the United States and several European governments that they face credit downgrades if they don’t soon come up with clear plans to get their deteriorating fiscal houses in order.

Moody’s Investors Service said Tuesday the weakening public finances in the U.S. and Britain may “test the Aaa [triple-A] boundaries” for their ratings. While analysts say there is no immediate risk of a cut in the ratings of major developed economies, the less stable fringe players are already feeling the heat.

In Europe, Ireland, Portugal and even France are under pressure to rein in rising budget deficits. And deeply troubled Greece has become the first euro-currency country to be whacked. Athens’ debt was downgraded a notch Tuesday to triple-B plus by Fitch Ratings. That’s only three levels above junk status and means Greece will have to pay investors more to buy its bonds.

Investors appear most worried about the British bonds, which now cost the same to insure against default as Portugese government bonds that have a rating two notches lower, and investors are now musing aloud about the possibility of a downgrade unless the country begins cutting debt.

The 17 biggies may be safe, at least for now, according to Moody’s, but the world may have to endure the shock of a sovereign downgrade sooner rather than later.