Triple A rated Governments safe, but risks grow

The credit ratings of the world's four largest triple-A sovereign debt issuers as well as Spain are safe but risks to their blue-chip status have grown, a report from Moody's Investors Service said on Monday.

For the United States, UK, France and Germany, as well as Spain and less fiscally-challenged Denmark, Finland, Norway and Sweden, the quarterly Aaa Sovereign Monitor report concluded that government ability to manage the debt was the deciding factor in keeping their Aaa status.

The report highlighted that Spain's long-term rating had deteriorated "significantly and is expected to deteriorate further, taking it close to the Aaa/Aa demarcation line, which would prompt us to reassess its rating."

But the report continued: "Although we see debt affordability getting close to the demarcation line, we do not see it breaking through on most plausible projections."

The chief of Spanish bank BBVA said on Friday the economy, the euro zone's fourth largest, would be one of the few to shrink in 2010 and its exit from the crisis would be difficult due to an unsustainable public deficit.

In the past year, only S&P among the main international rating agencies has downgraded Spain from the top notch and Moody's has not changed Spain's status since 2001.

The triple-A rating helps countries secure cheaper funding on international capital markets.

Moody's said there are concerns about how governments will handle improved economic conditions and the unwinding of aggressive expansionary fiscal and monetary policies.

"At the current elevated levels of debt, rising interest rates could quickly compound an already complicated debt equation, with more abrupt rating consequences a possibility" said Pierre Cailleteau, Managing Director of Moody's Sovereign Risk Group.

Nevertheless, debt affordability - the coverage of interest payments on borrowings by government revenues - indicates that "the ratings of all Aaa governments remain well positioned, despite the reduction in their `distance-to-downgrade' and the widening of tail risk" the report's summary said.

The report concludes that the Aaa ratings of the UK and the United States, whose debt affordability is currently the most stretched, continue to be supported by substantial ability to repair their balance sheets.