These are financially straitened times. We are seemingly pummelled each day with reports of our financial fragility and there seems to be a consequent need for stringent fiscal policy to assure international investors of our ‘bona fides’. In such a context, it is interesting to explore the geography of national and regional credit ratings. Despite its flawed analysis of the risk associated with sub-prime assets that contributed to the near collapse of the global financial system, as one of the leading financial ratings agencies Standard & Poor’s remains an important force in determining Irish fiscal policy. The ratings purport to indicate the risk associated with lending to a country. There are 16 possible classifications ranging from AAA+, indicating an extremely strong capacity to repay debts, to SD/D, indicating that a partial or full default is likely.
Ben Schott recently compiled a table comparing the ratings of a range of countries and each of the 50 states that make up the USA. A comparative analysis shows that Ireland has gone from an AAA (best quality borrowers) to an AA (very strong capacity to repay debts, but with higher risk than AAA) classification between January 2008 and January 2010. Interestingly, with the exception of Ireland, Greece, Spain and Portugal, the ‘old’ EU countries have maintained their ratings throughout this period. Greece is currently one rating classification away from Iceland. Many of the new EU member states, although by no means all of them, have witnessed a downgrading of their ratings.
It appears that Mary Harney may have been inadvertently right; we are indeed closer to Boston (Massachusetts) with its AA standing than Berlin (Germany) with its AAA rating. Going by these rating classifications, however, we are, at this stage, a far cry from being the next Iceland, or indeed, Greece.