Moody’s fears ‘social cohesion’ as AAA states retrench

The world’s five biggest AAA-rated states are all at risk of soaring debt costs and will have to implement austerity plans that threaten “social cohnesion”, according to a report on sovereign debt by Moody’s.

By Ambrose Evans-Pritchard
Telegraph [UK]
15 March 2010

The US rating agency said the US, the UK, Germany, France, and Spain are walking a tightrope as they try to bring public finances under control without nipping recovery in the bud. It warned of “substantial execution risk” in withdrawal of stimulus.

“Growth alone will not resolve an increasingly complicated debt equation. Preserving debt affordability at levels consistent with AAA ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion,” said Pierre Cailleteau, the chief author.

“We are not talking about revolution, but the severity of the crisis will force governments to make painful choices that expose weaknesses in society,” he said…

The article continues at the Telegraph.

From the New York Times: Moody’s Warns U.S. Debt Could Test Triple-A Rating

The gold-plated credit rating of the United States — an article of faith across America and, indeed, around the world — may be at risk in coming years as the nation copes with its growing debts.

That sobering assessment, issued Monday by Moody’s Investors Service, provided a reminder that even Aaa-rated United States Treasury bonds, supposedly the safest of safe investments, could be downgraded one day if Washington failed to manage the federal debt.

Moody’s said the United States and other major Western nations, particularly Britain, have moved “substantially” closer to losing their gilt-edged ratings. The ratings are “stable,” but “their ‘distance-to-downgrade’ has in all cases substantially diminished,” the credit ratings agency said.

A downgrade would affect more than American pride. The bigger risk would be to the country’s ability to keep borrowing money on extremely favorable terms, and therefore to keep spending more money than it takes in from tax revenue.

The rest is at the NYT.

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