Country risk: Europe’s new default setting

Historical data from Euromoney’s country risk survey show that only a handful of sovereigns that have defaulted or restructured their debts have recovered their previous country risk scores. The lengthy recovery times illustrate the damage that default can have on investor sentiment and the lengthy recessions that have frequently followed financial crises.

External factors have frequently played a strong role in post-crisis recoveries. Russia, which remains the only country that has defaulted to recover its previous ranking, is an obvious example. Argentina, which has never recovered its reputation in the eyes of economists, benefited from the global recovery that followed its default in 2001.

The problem for eurozone policymakers is that the fiscal problems of member states are not only much greater than those of crisis-hit emerging markets in earlier years but that there is also little on the horizon to suggest that Europe’s low-growth bloc will be bailed out by external factors this time around. For a region that has already fallen further in economists’ estimation than Asia did in 1997, that’s a serious problem. 

For full current rankings visit www.euromoneycountryrisk.com.

Contact ECR to access historical data

A version of this article first appeared in Euromoney Country Risk. Euromoney Country Risk is an online service from Euromoney dedicated to sovereign and country risk.