Posted on 01/29/2009 10:32:29 PM PST by TigerLikesRooster
Sovereign Debt Risk Looms Large This Year
The U.S. shouldn't consume all the available lending
By ULRICH VOLZ
Last week, Standard & Poor's rating agency downgraded Spain's and Portugal's long-term sovereign debt because of their deteriorating public finances. A week earlier, S&P downgraded Greece's sovereign credit rating and issued a warning to Ireland that its rating is under threat too.
The rediscovery of risk is not limited to the euro zone, and it doesn't end with the United Kingdom either. The era of easy credit came to an abrupt end last summer and has given way to a withdrawal of funds from almost all corners of the developing world. A flight to safety and liquidity -- which essentially means a flight to U.S. Treasurys -- has become the dominant strategy of investors all around the world.
The Opinion Journal Widget Download Opinion Journal's widget and link to the most important editorials and op-eds of the day from your blog or Web page. To prevent a potentially devastating credit crunch in the developing world, members of the G-20, the group comprising the world's 20 major economies, should consider establishing a temporary Global Expenditure Support Fund. Such a fund, first proposed by Indonesian President Bambang Yudhoyono at the G-20 summit in Washington last November, would be used to support budget and project financing in countries that traditionally rely on market sources for their financing requirements but are facing harsh difficulties due to the breakdown and disruption of financial markets.
How bad are the credit markets? The rollover of corporate and government debt has been severely disrupted by the seizing up of international capital markets, and the issuance of new debt has been nearly impossible since September.
(Excerpt) Read more at online.wsj.com ...
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