Triple-A nations need to tighten before recovery

MANY governments that currently enjoy triple-A ratings on their sovereign debt will be forced to implement credible fiscal consolidation programmes before their recoveries are fully secured, ratings agency Moody’s warned yesterday in its outlook for 2010.

“It is very likely that most governments will not have the luxury to wait until 2012 to start cleaning up public finances. 2010 will probably see the inflexion point in highly accommodative policies,” Moody’s strategists said yesterday.

While the finger has been pointed at both the UK and the US in recent months, the ratings agency did not name specific countries that would have to deal with this tough environment.

The team of strategists argued that many triple-A governments, including the UK and the US, cannot afford another financial crisis because their shock-absorption capacity has been reduced.

Eurozone countries such as Greece, Portugal, Spain and Ireland, which have seen their budget deficits balloon, may find single currency membership a hindrance in 2010, Moody’s said.
“While the euro has been protective during the liquidity crisis, it will not help these countries rebound. Indeed, it could even be a hindrance.”