Europe unfazed by U.S. debt outlook change

Dollar bill notes pass through a printing press at the Bureau of Engraving and Printing in Washington, D.C.

UPDATED REPORT:

STEVE CHIOTAKIS: Global investors today haven't made too big a deal over ratings agency Standard & Poors revising its U.S. debt outlook to negative. The country's debt is still rated AAA. Over in Europe the ratings story is a familiar one.

Marketplace's Stephen Beard reports.


STEPHEN BEARD: Investors have decided that Europe's debt crisis is much worse and more immediate than America's. The U.S. may face a downgrade within the next two years. But one of more European governments might default within the next two months. And some analysts believe that S&P's move could improve the chances of the U.S. getting its public finances under control.

Stephen Lewis is with Monument Securities.

STEPHEN LEWIS: The President may use that threat as a weapon to bring elements in the Congress into line in support of his plan.

Investors have seen something similar on this side of the Pond. Two years ago Britain was also under threat of a downgrade. And that enabled the U.K. government to push through a deeply unpopular deficit-reduction program.

In London I'm Stephen Beard for marketplace.


ORIGINAL REPORT:

JEREMY HOBSON: When the rating agency S&P said yesterday that it doubted there was the political will to do something about long term U.S. debt, the news sent shock waves from Wall Street to Washington and beyond. But investors in Europe don't seem all that bothered this morning. Perhaps because this is familiar territory for them.

Marketplace's Stephen Beard is with us live from London with more on that. Good morning, Stephen.

STEPHEN BEARD: Hello Jeremy.

HOBSON: So, I take it this is sort of deja vu for the U.K.

BEARD: Yes. In fact two rating agencies put the U.K. on negative watch, saying it could loose its AAA rating. That was back in May 2009. There was an election later, a new government came to power, and brandishing this threat of a downgrade, the new government pushed through a pretty severe deficit reduction plan.

Steven Lewis of Monument Securities thinks Obama may be able to do the same. Because his opponents won't want to take the blame for the humiliation of a U.S. downgrade.

STEVEN LEWIS: The President may use that threat as a weapon to bring elements in the Congress into line in support of his plan.

So maybe Congress will put through some steep cuts. But dare I say this Stephen -- you guys did all those cuts and now your economy is shrinking.

BEARD: Well, indeed. I mean, the U.K.'s in a very fragile condition. Unemployment is rising, consumer spending has just fallen off a cliff. Critics of the U.K. governments say the cuts in public spending are to blame. They've dented consumer confidence. Supporters however say no, we'd be in an even bigger mess without the cuts. We'd be like some of those other European countries that at least the U.K. has kept its credit worthiness in tact.

HOBSON: Marketplace's Stephen Beard in London, thanks.

BEARD: OK Jeremy.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.

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