Europe’s policy response to the COVID-19 economic crisis has increased budget deficits and public debt but so far cushioned the potential blow to sovereign ratings. The post-pandemic ratings trajectory will depend on governments’ ability to deliver sufficient economic growth to restore fiscal balances.
LONDON – From a European sovereign credit-risk perspective, the COVID-19 pandemic differs from other recent crises. First, the current economic crisis arose from recession-inducing lockdowns to combat a viral contagion, rather than from an asset-market contagion caused by a failing financial system. Second, Europe’s policy response has been far more robust than previously. Once the pandemic ends, the trajectory of European sovereign ratings will depend on governments’ ability to deliver sufficient economic growth to restore fiscal balances.
LONDON – From a European sovereign credit-risk perspective, the COVID-19 pandemic differs from other recent crises. First, the current economic crisis arose from recession-inducing lockdowns to combat a viral contagion, rather than from an asset-market contagion caused by a failing financial system. Second, Europe’s policy response has been far more robust than previously. Once the pandemic ends, the trajectory of European sovereign ratings will depend on governments’ ability to deliver sufficient economic growth to restore fiscal balances.