Virginia Mayo
The last cut is not always the deepest. Moody's decision this week to slash its rating on Greek government bonds another three notches to the equivalent of single-B-plus is merely another step on the downward spiral to an inevitable default, er restructuring, of some sort.
Anything in the single-B category is regarded as highly speculative. But in Greece's case, it's merely a case of a rating agency belatedly catching up to market sentiment.
Ten-year bonds yielding in the neighbourhood of 12 per cent are nothing if not the stuff of junk collectors' dreams.
In fact, the 10-year Greek bonds now trade at a yield nearly twice as high as Lebanese debt (6.25 per cent); Sri Lanka (9.25 per cent); Egypt (6.85 per cent for nine-year bond) and even Iraq (7 per cent for bond maturing in 2028) are regarded as safer bets in the bond world. If you're looking for an almost equivalent risk, try barely functioning Pakistan (14.3 per cent).
Still, it was good of Moody's to remind us that, while our immediate attention has turned to Libya and the Middle East and the risks of spiking oil prices derailing the recovery, the European debt crisis remains at least as big a global threat. And just because the crisis has been bumped to a back-burner in the latest news cycle doesn't mean the Europeans are any closer to resolving it in a way that won't cause considerable pain for everyone involved, including debt-holders.
That's why the Greek government's reaction to Moody's hefty cut was laughable, even though it contained nuggets of truth. The "completely unjustified" downgrade "does not reflect an objective and balanced assessment" of the country's economic prospects, the finance ministry fumed. "Ultimately, Moody's downgrading of Greece's debt reveals more about the misaligned incentives and the lack of accountability of credit rating agencies than the genuine state or prospects of the Greek economy."
And here's the part that's undoubtedly close to the mark: "Having completely missed the build-up of risk that led to the global financial crisis in 2008, the rating agencies are now competing with each other to be the first to identify risks that will lead to the next crisis."
Well, I say, let the agencies fall all over themselves competing to call the next crisis and bring their debt ratings out of the realm of science fiction. Speaking of which, how long does the debt-ridden U.S. government get to keep its triple-A rating?
In the meantime, we have the following unfolding in Europe:
* The new Irish government wants the EU to reduce its average interest charge of 5.8 per cent on €45-billion worth of loans. And it is resisting pressure from higher-tax France and Germany to boost its corporate tax rate of 12.5 per cent.
*They can deny it all they like, but Portugal and Belgium are almost certainly going to join the bailout queue. And Austria and Spain aren't out of the woods either. But the problems Belgium and Portugal face are more imminent - namely a raft of maturing debt. Portugal will have to fork out the equivalent of 1.9 per cent, 2.7 per cent and 2.9 per cent of GDP to meet obligations maturing on March 18, April 15 and June 15, respectively. For Belgium, the totals it will have to pay out or roll over between mid-March and mid-April amount to a whopping 5.3 per cent of GDP.
And European leaders wonder why investors are demanding record compensation for the risk of owning these and other struggling members' bonds?
Follow Economy Lab on twitter