Rating agencies strangely confident in the face of soaring European states’ debt

Posted on Dec. 2020 at 6:30Updated Dec 18. 2020 at 12:53

Entire sections of the economy at a standstill. International exchanges reduced to their strict minimum. States that are going into debt like never before – nearly 1,300 billion euros were raised last year – to support households and businesses. And record deficits. One could expect that the rating agencies were worried about this corona-crisis which sent the ratio of debt to GDP of many European states to unprecedented levels. And that they multiply warnings and degradation. Globally, Moody’s has also recorded a 40% increase in rating shares on government debt, mainly in the direction of a downgrade. But in Europe, the disaster scenario did not materialize.

On the contrary, unlike the eurozone crisis of the early 2010s, the agencies were strangely accommodating. Of the Big Three, only Fitch decided to downgrade Italy’s rating in April to BBB-, just a cut above the speculative category. A decision taken in particular in the face of predictions of debt at over 155% of GDP. It also downgraded Slovakia to A. On the outlook, Fitch lowered Portugal and Greece to stable, and France’s negative. The outlook for Spain is now negative for S&P Global Ratings. But we are far from the hecatomb. S&P even raised its outlook on the BBB rating granted to Rome to stable. And Moody’s upgraded Greece’s rating in early November.

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