Sovereign-debt struggles in Europe

TEN years ago when the Economist Intelligence Unit, a sister company of The Economist, calculated scores for countries' sovereign-debt risk, the riskiest countries by some distance were Russia, Brazil and China, three of the four emerging-market BRICs (along with India). The scores measure the risk of a build-up in government debt, and take political, economic-policy, economic-structure and liquidity-risk factors into account. Now, though, some European economies look flakier. High public debt, weak growth and high unemployment explain why credit-rating agencies recently put Greece and Spain on credit watch, and downgraded Portugal's and Ireland's ratings. European governments that have sought to bring huge deficits under control have encountered public demonstrations and disorder. Concerns over contagion have caused sovereign credit-default swap spreads to widen, and the cost of borrowing to rise. Ten-year Greek bond yields are now over 12%, more than double what they were at the beginning of the year. Greece, which according to its prime minister, went "through hell in 2010", will be hoping 2011 is a bit easier.



