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ECR Survey Results Q4 2011: Country risk scores for European sovereigns decline

Country risk scores deteriorate across the eurozone

As Europe reacts to the multiple downgrades of eurozone sovereigns by rating agency Standard and Poor’s (S&P), the latest results of Euromoney Country Risk rankings show that the deterioration of country risk scores across Europe is accelerating.

Core member states across the eurozone received lower scores, indicating heightened country risk scores from economists during the fourth quarter of 2011.

Germany, Luxembourg and Finland all fell by one place in the global rankings in Q4 as the economic and political crisis that has engulfed the eurozone continued to affect economists’ opinions of the the currency group. In the periphery, Greece fell 10 places in the table to 115th globally, its lowest rating, while Italy fell two places to 37th.

The score reductions continued the declines that have dogged European sovereigns since September 2008 (see chart below).

The top-rated eurozone sovereigns have seen their country risk scores deteriorate by an average of 9.5 points out of 100 during this period.

 Source: Euromoney Country Risk

Across the eurozone, the score declines were driven by reductions in the survey’s economic section (30% weighting in the overall country score). Economic scores declined by an average of -1.2 points out of 100 during the quarter, with Italy, France and Cyprus receiving the largest score declines in the region.

The steepest score declines took place in the category for monetary policy/currency stability (MPCS). Average scores for MPCS declined by -0.15, double the size of the previous quarter’s reduction, suggesting that analysts believe the probability of one or more euro-area member states leaving the euro is increasing.

While the economies of Italy (-0.3), Greece (-0.2) and Ireland (-0.1) all registered score declines in the MPCS category during the quarter, the largest single MPCS decline took place in Finland, whose score fell by -0.4 points during the quarter. This might alarm euro-area politicians, particularly in the build up to the Finnish presidential elections at the end of January.

Declining average scores in the bank stability (-0.18) and economic growth outlook categories (-0.12) also contributed to the eurozone’s reduced economic outlook.

Analysts also observed increasing political risk across the eurozone periphery during Q4.

Political risk scores (30% weighting in overall country risk score) deteriorated in Italy, Greece, Ireland and Spain. The fall was driven by lower (riskier) scores for corruption, government stability and the risk of government interference in the repatriation of capital throughout the region.

As with the rest of the eurozone, scores for economic risk also deteriorated sharply, contributing to lower country risk scores across the periphery.

 Eurozone country risk scores
Biggest fallers

(Q4 2011)

 Source: Euromoney Country Risk

For the full survey, check out Euromoney Country Risk

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