Macroeconomics

09 December 2013

A tale of two debt ratings 

Slow economic growth in the Netherlands has triggered a slight downgrade in the rating on Dutch sovereign bonds. In contrast, a gradual recovery from a steep recession has led to an improvement in rating agencies’ assessment of Spain’s public debt.


In the Netherlands, the downgrade reflects the nation’s challenge with personal debt, as about 16 percent of Dutch homeowners owe their lenders more than their homes are worth. Also, austerity measures imposed by the government have acted as a brake on consumption.

In Spain, the challenges are much more profound: the country’s unemployment rate is over 25 percent, and the government must pay very high interest rates to attract investors to buy its sovereign debt. But the recent improvement in the outlook on Spanish sovereign bonds shows how far Europe’s fourth-largest economy has come since 2012, when it was widely feared that the country might default on its debts.

The ratings agency Standard & Poor’s reduced Dutch sovereign bonds to a rating of AA+, just below the AAA rating most coveted by bond issuers and now held by just three eurozone countries: Germany, Finland and Luxembourg. S&P also raised its outlook on Spanish bonds to “stable” from “negative,” although its rating remains a sub-investment grade BB-.

Bond ratings helped drive sharp swings in the financial markets when Europe’s debt crisis hit its peaks, but the most recent changes triggered little reaction in the bond markets. This suggests that investors are feeling less anxious about the outlook for sovereign debt.

Rising exports are helping both the Spanish and Dutch economies, but reviving domestic spending is expected to be a significant challenge in both nations, according to S&P. It could be years before either country is as rich as it was in 2008.