The Last AAA Countries (And Those At Risk)

At Risk of Losing AAA Rating:

1. Austria
> GDP per capita: $39,634.128

We were surprised to see Austria has a triple-A rating with a stable outlook. Its business ties to the lands of the PIIGS and to Eastern Europe hurt its balance sheet. The country has a low population above 8.2 million and its 2010 GDP was roughly $332 billion per adjusted figures. The 2010 public debt ratio was 70.4% of GDP. Our take is that the ties to Germany may give it perhaps an artificial triple-A rating. The EIU said, even before the latest waves of weakening in trading partner nations, that Austria needs to continue restructuring, emphasizing knowledge-based sectors, move to greater labor flexibility, and grow labor participation to offset unemployment and aging trends and low fertility rates. Our own internal risk assessment is more critical than S&P and Moody’s and we just do no count Austria as a true triple-A in the European austerity path and with the the PIIGS nations facing so many woes, whether the European Union bails them out or not.

2. Finland
> GDP per capita: $34,585.453

Finland is a worrisome triple-A nation. It has a large landmass and a small population of about 5.25 million. It has a GDP of roughly $186 billion, a higher unemployment rate today, and a deep reliance on trade. Its precious technology sector is suffering with Nokia’s decline and the CIA Factbook noted that general government finances will remain in deficit during the next few years. Being rich in timber today does not weigh as much as being reliant entirely on imports of energy, raw materials, and many components for manufacturing. While 2010 debt to GDP was only 45.4%, it is easy to argue that this could skyrocket higher in hard times. Aging population trends, taxation risks, and that pesky Nokia problem all act in unison to keep us from considering Finland as a true triple-A nation.

3. France
> GDP per capita: $34,077.040

France is one of the world’s strongest nations and is the runner-up for Big Brother status in the euro. The population is now about 65.3 million and GDP was ranked as No.10 in the world at $2.145 trillion. France actually withstood the recession better than many other nations. But the CIA data showed that budget deficit rose from 3.4% of GDP in 2008 to 7.8% of GDP in 2010 with its public debt going from 68% of GDP to 84% over the same period. With France being a key guarantor in the EU and the woes of the PIIGS nations, France could easily find itself at-risk of losing its the triple-A rating. Its banks also own substantial U.S. debt. We still view the debt rating risks more harshly than the ratings agencies on a longer-term basis. Pension reform, tax reform, demographics, immigration, a high degree of exposure to bailouts, all combine with a very stubborn labor force to put France potentially under the same risk that the U.S. faces in the years ahead.

4. United Kingdom
> GDP per capita: $34,919.511

The United Kingdom has kept its triple-A rating since ratings were initiated. The third largest economy in Europe after Germany and France has a population of about 62.7 million and its revised GDP figure was $2.17 billion. England is in a funk even if the ratings are not under immediate fire. The Brits face property woes and S&P did actually give the nation a ‘negative outlook’ before reverting back to ‘stable’ in 2010. That puts our top allies at risk all over again if collateral damage comes from the U.S. Our banking systems have many overlaps. One risk is that while it has coal, natural gas, and oil resources, reserves are declining and it is now a net importer of energy.

The U.K.’s revised public debt to GDP was left at 76.5%. The financial meltdown and property crash was brutal in England, perhaps even more so than in the U.S. Taxation issues are ongoing, along with risks of bank nationalization, unavoidable austerity measures, rising debt, deficit spending, and urban immigration remain — all present large challenges in the intermediate-term and in the long-term. What has helped to save England is that it stayed out of the euro, so it can print pound sterling if needed. Still, the U.K. has nearly all of the same risks as the U.S. has for its triple-A status, which puts it at real risk.

5. United States
> GDP per capita: $47,283.633

The United States has so far managed to technically escape the triple-A downgrade hangman. For now. This is the trickiest of all triple-A rating analysis, and it is relatively easy to argue that the triple-A rating here is actually a manipulated rating. For a ratings agency to downgrade the U.S., some will claim that there is no such thing as a triple-A rating. Both political parties have deep responsibility in having helped to torpedo the financial standing of the nation. Fitch and Moody’s have both keyed in negatively about the long-term triple-A prospects, and S&P wants even more budget cuts ahead.

The world’s biggest economy has a population of 313 million and revised GDP figure of $14.66 trillion. Moody’s warned back in December 2010 that the nation faced credit negative forces. The warnings have only grown. Public debt was not as high in 2010 at only 58.9% of GDP per the CIA data. But that was then. High deficits, declining tax revenues, and current entitlement demands will drive this far higher. It was immediately after the debt ceiling was lifted that Fitch opined that this only one step; that the process has not ended; and that the rising debt profile to over 100% of GDP (after 2012) is a “not consistent with the United States retaining its AAA sovereign rating.”

The pains of healthcare and social security reform; the argument that the recession never really ended and is coming back; a worsening employment situation; unrealistic entitlement expectations of the public; continued property value declines; still high deficit spending; military spending obligations; a crumbing infrastructure; a refusal to increase tax revenues of any form whatsoever; a historically short debt-maturity schedule with artificially low rates; and a few dozen more issues all jeopardize the U.S.’s highly cherished triple-A ratings status. The U.S. is under review by ratings agencies, and the economy is literally softening under our feet.

This is said with sadness, but the ratings agencies have already begun the U.S. downgrade process. The rest of the process is only up to whether or not Washington and the public can reach down and accept the notion that less is more in the end. The coming changes required will mean that Warren Buffett’s predictions of a greater future have no merit.


After you have reviewed the nations with triple-A ratings, the reality is much more sobering than it was even six months ago. The United States has been a large part of the ratings woes, but Europe shares in much of the blame. The post-austerity world is going to create new winners as well as some losers. The global business climate is challenging, at best.

This article was written by a concerned American who tried to leave political views at the door. The ratings agencies did no favors before the recession took hold and they are doing no favors today. Still, a look in the mirror and action by all economic participants from the very bottom to the highest level is still needed. A triple-A rating just does not have the same meaning that it used to. If you think that S&P and Moody’s won’t downgrade the U.S. and other nations, think again. Egan Jones has already formally downgraded the U.S. from a triple-A rating.


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