Country Risk: Eurozone’s triple-A woes continue

S&P’s decision to put the Triple-A ratings of Finland, France, Germany, Luxembourg and the Netherlands on a negative outlook this week has brought angry responses from the French and German governments. But S&P’s politically charged move is backed up by the steady decline of country risk scores for each of the Eurozone’s remaining Triple-A rated sovereigns since September 2008. Economists have reduced country risk scores for these countries by an average of 7.5 points out of a possible 100 in the period following the collapse of Lehman Brothers in September 2008. Luxembourg is the highest rated country among these sovereigns, with a country risk score of 89, followed by Finland (87). France (80) remains the lowest rated Triple-A sovereign in the Eurozone. In the survey, which measures economists opinion across a range of economic, political and structural risk, Luxembourg (-10.8) has received the largest score decline since 2008, followed by France (-10.2). The Netherlands, Germany and Austria have registered score declines of at least 5 points, while Finland (-4.8) has received the smallest score decline. The average score for the Eurozone as a whole fell 13.4 points over the same period.

Country risk scores, Eurozone (2008- 2011)

Source: ECR

Bank Stability scores decline Lower bank stability scores have significantly ontributed to the declining country risk scores of the Eurozone’s triple-A sovereigns. Economists consider bank stability in Finland, Germany, France, Austria and the Netherlands to have deteriorated since September 2010. Only Luxembourg (+0.1) points during this period, has seen its bank score improve. Finland and Luxembourgh (8.5) are considered the most stable banking sectors among Eurozone Triple-A sovereigns, followed by the Netherlands (7.5). France (7.0) has the lowest bank stability score.

Bank stability score change, September 2010-December 2011

Source: ECR (Bank stability scores out of 10)

Luxembourg, Finland and Netherlands remain safehavens Luxembourg, the Netherlands and Finland retain their place in the ECR global Top 10, despite deteriorating country risk scores. Economists rank these sovereign 3rd, 7th and 9th, respectively, in the global ECR rankings. However, non-euro member states with comparative safehaven status, such as Switzerland and Norway are considered to be superior investment destinations by economists (see chart). Germany (13th), Austria (14th) and France (16th) are not included in the ECR Global Top 10.

Country risk scores, safehavens (2008-2011)

Source: ECR

Visit Euromoney Country Risk for more data and analysis