by George Dorgan
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Who Downgrades France MUST downgrade the UK, too
After Moody’s downgraded France, we are waiting the next major sovereign to suffer the same fate. According to the must-read interactive graph on the BBC, France now has a medium risk of default, but the UK is still in risk status “low”.
UK Risk of Default BBC - Click to enlarge
According to the BBC, each citizen of the United Kingdom has €117580 of foreign debt. 436% (BBC data) of a total of 507% GDP total debt (see below) is in foreign hands.
Decomposition of Debt worldwide - Click to enlarge
But the BBC states:
This level of overall external debt is generally not seen as a problem because the UK also holds high-value assets.
Aha ok, I understand, there is no problem with having 436% of GDP in foreign debt, namely because the UK holds high-value assets. Some of these “high-value assets” are the following:
- 9 bn € Greek debt (according to BBC high risk)
- 104 bn € Irish debt (according to BBC high risk)
- 19 bn € of Portuguese debt (high risk)
- 55 bn € Italian debt (high risk)
- 75 bn € Spanish debt (medium risk)
- 227 bn € French debt (medium risk)
Hence a total of 489 bn €, yes we understand, “high-value assets” using the same BBC interactive graph.
- 41 bn € Greek debt
- 24 bn Irish debt
- 19 bn Portuguese debt
- 309 bn Italian debt
- 112 bn Spanish debt
UK’s negative current account and negative investment position
Upcoming triple dip recession and lack of competitiveness
Apart from upcoming triple dip recession, we see inflationary pressures in the difference between the producer price indices for input and output. Input price changes have come down to 0, but output prices have risen by 2.6%. This leads to continuing wage inflation, which, as opposed to countries like China, Germany or Switzerland, is not reflected in improving trade balances or current accounts. For us it is a clear sign of lack of competitiveness.
Input and Output Prices UK - Click to enlarge
Partiality of US/UK Rating Agencies
This one thing seems to be clear for us: whoever downgrades France, must do the same to the United Kingdom, as well.
But we know that Moodys have one of their main offices in London, mostly British and American share holders. Apart from Standard and Poors’ highly criticized US downgrade in August 2011, the leading three rating agencies seem to be very myopic with regards to the United Kingdom and the United States. Would they saw through the branch on which they were sitting?
They probably do want to have the same fate like Egan Jones that, after its downgrade of the United States, faced legal action from the SEC for a years’ old action.
Tags: competitiveness,current account,international investment position,NIIP,producer prices,United Kingdom,wage inflation
