The Risky Rich
Traditionally, sovereign risk has been concentrated in emerging-market economies. But ratings downgrades, a widening of sovereign spreads, and failed public-debt auctions in countries like the UK, Greece, Ireland, and Spain provide a stark reminder that unless advanced economies begin fiscal consolidation, investors, bond-market vigilantes, and rating agencies may turn from friend to foe.
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NEW YORK – Today’s swollen fiscal deficits and public debt are fueling concerns about sovereign risk in many advanced economies. Traditionally, sovereign risk has been concentrated in emerging-market economies. After all, in the last decade or so, Russia, Argentina, and Ecuador defaulted on their public debts, while Pakistan, Ukraine, and Uruguay coercively restructured their public debt under the threat of default.