Too High A Risk?

As confusion reigns regarding the Greek debt crisis there is concern about a potential increase in the cost of debt for the UK Government. This comes at a time when the UK is £1.3 trillion in debt with a budget deficit of around £160 billion which is unlikely to fall below £80 billion a year over the next four years.  As a consequence, the UK government will need to refinance large chunks of national debt over the next few months and years, which could come at a cost to UK public services.

This week saw the collapse of Greek debt bonds with yields rising to above 11% as the investments were effectively labelled as "junk" by credit rating agencies. Since the Greek credit rating downgraded we have seen a reduction in the credit rating for Spanish and Portuguese national debt with more downgrades likely in the short to medium term. Whether or not the UK credit rating will come under pressure in the short term remains to be seen but there are growing worries across Europe.

Rogoff, who has just published a book on eight centuries of financial crises, said that Greece was "a serial defaulter".  Since the modern Greek state was founded in 1830, the country has, on average, been in sovereign default every other year and had been through five big defaults in less than 200 years. "Greece has been worse than any Latin American country," he adds.
Perhaps the economists should learn a lesson from direct marketers.  I’m sure that if the team of analysts here at Lloyd James were building a risk score model for a client they would most certainly have picked up on such a major factor that, after all, has been an issue over the last 200 years!  Our advice would have been that they should have been regarded as far too high a risk to offer any type of credit product and to move them swiftly onto the DNC list!

Darrel Linehan