Fears of a Euro meltdown have spread across the world after investors began turning their backs on the sovereign bonds of indebted Greece. This led more investors to doubt the solidity of other economically weakened nations such as Ireland, Portugal, Italy and Spain.
But Moody’s has allayed fears of a euro-wide economic crash. It says the economies of both Spain and Portugal remain relatively stable and even the situation in Greece is unlikely to ever lead to a default on its debt obligtions.
Moody’s senior vice president Kristin Lindow says: “Spain, Portugal and Greece may share the same currency, but they do not display the same credit profile.”
Greece is on negative ratings watch by Moody’s and it says there is a chance that it will be downgraded to BAA1 thanks to the Greek government’s “very ambitious” plans to slash the public deficit by nearly 10 per cent of its GDP in three years.
But while Moody’s admits that Spain has “significant challenges” in de-leveraging its private and public sectors and Portugal has “low level of competitiveness and higher interest rates”, it says the creditworthiness of both nations remains safe in the short-term.
Lindow says: “The situations facing these three countries on the periphery of Europe are symptomatic of the post-crisis developed world.”
She argues that the governments of the so-called ‘PIGS’ have numerous options at their disposal to deal with debt problems, ranging from private banks providing temporary assistance with the help of the European Central Bank to funding from other member states. She says countries in very serious trouble can even ask for help from the International Monetary Fund, as was recently case for Hungary, Iceland, Latvia and Romania.
But Lindow warns that it is right to be concerned about the debts of European nations which are so intwined with the fate of the single currency. She says: “The actions [Spain, Portugal and Greece] take now will determine not only their own fates and their ratings, but are also likely to affect the economic and fiscal fates of their European partners, the eurozone itself and other highly-rated countries elsewhere in the world.”