DBRS Commentary: Restoration of Confidence in 2011 Hinges on Euro Zone Policy Resolution

DBRS Inc. (DBRS) has today released a commentary entitled “Restoration of Confidence in 2011 Hinges on Euro Zone Policy Resolution.” The commentary discusses the stability of sovereign credit ratings in Europe. DBRS said that the stability of many of these European sovereign ratings is inextricably connected to the restoration of investor confidence in the euro zone. This is due to the fact that close to $1 trillion of maturing U.S. and euro zone sovereign bonds need to be refinanced in the capital markets in 2011, and with many euro zone countries finding it difficult to access private finance, DBRS expects that investor confidence must be restored before governments are able to properly repair their balance sheets.

DBRS believes that Europe’s institutional response to investor concerns across the euro zone – which include its position with regard to the treatment of bondholders, the structure of the forthcoming European Stability Mechanism, and the degree of European Central Bank support for euro zone governments and financial institutions – is the most important determinant in restoring investor confidence.

Should the absence of a resolution of European institutional policies result in the continuation of low investor confidence, DBRS stated that it is likely economic recovery will be delayed, while at the same time postponing debt sustainability in several euro zone countries. Such an outcome could negatively impact the stability of certain European sovereign ratings. A speedy clarification of euro zone policies would go a long way to restoring investor confidence and help stabilize DBRS’s ratings.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Sovereign Governments, which can be found on our website under Methodologies.

A copy of this commentary is available by clicking on the link below or by contacting us at info@dbrs.com.