Debt levels will challenge governments for years, executives say
Nations with untenable debt levels will struggle to grow and have a hard time accessing credit, senior executives polled by RBC Capital Markets say.
The bank commissioned a survey of 440 executives from around the world. The mix of corporate managers was diverse: Thirty-four percent were from North America, 41 percent hailed from Europe and 16 percent were Asian.
The survey respondents were decidedly bearish on the euro-zone, which has come under scrutiny in recent months for member states’ vast deficits and ever-widening sovereign debt. Fully two-thirds of the executives that RBC polled said they expected euro-zone growth to be impacted by the region’s debt problems.
The U.S. – whose debt levels have faced an increasing amount of criticism – also engendered a fair amount of bearish sentiment. More than half of survey respondents said they expected emerging-market nations, more than America, to drive global growth in the future.
Debt-constrained nations’ access to credit was cited as a concern. "The competition for capital may well grow more acute as heavily indebted governments seek to raise unprecedented amounts of capital for structural outlays," RBC said. Yet, bank global research co-head Marc Harris noted, "Investor appetite for specific sovereign debt will be closely correlated with each country’s ability to bring fiscal discipline in fighting the specter of inflation."
The just-concluded Group of 20 meeting ended with industrialized nations’ resolution to cut deficits in half by 2013. Some argue that more spending is needed now to help drive economic growth, but the move to reduce deficits is a sign that governments are conscious of the market’s desire to see sovereign spending reined in.
In the long-term, even more radical moves like tax hikes may be needed to stave off national bankruptcies.
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