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The 2012 guide to
GLOBAL RISK TRENDS
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high-risk sovereign today, indistinguishable
from Finland on a score of 91.2. Ireland,
ranking 20th when the survey began (but
now down to 48th), and Italy, bubbling
just below the surface in 24th position
(currently 41st), were also considered much
safer sovereigns for global treasurers. In
fact, all of the top-ranking ECR countries in
1992 now have reduced scores. The world
has indeed become a riskier place.
Even in 1999, when the euro project reshaped
Europe’s boundaries, exactly half of
the top 20 safest sovereigns in the world
were eagerly awaiting conversion to the
single currency. With banking systems
superficially secure, the distress seen
today seemed a distant prospect. Eurozone
participants had, after all, signed up to
macroeconomic stability, dispensing with
their mostly-depreciating currencies, high
inflation and weak, uncompetitive growth
rates, by locking in to Germany’s strong
economy and pocketing the ‘insurance
policy’ offered by the ECB’s pooled reserves
and apparently strict membership rules.
Or so it seemed. Today, only six countries
out of an expanded 17-nation euro currency
area are among the world’s top 20 ‘safest’.
And with France slipping to 19th in ECR’s
rankings this year, it may not be too long
before there are just five.
As the risks surrounding Europe’s debt
problems mount, so the rest of the world is
also becoming less safe – a worrying sign for
treasury managers. Virtually all of the other
main regions/economic groups have become
riskier so far this year, led by the emerging
powerhouses (the BRICs), Central and
Eastern Europe and the Middle East. But
it’s a pattern that cannot be explained by
contagion alone, even if Europe’s problems
have invariably led ECR’s survey contributors
to reassess the risk outlook as exports and
capital flows are affected. A combination
of economic, political and structural factors
is to blame. They range from bank stability
risk, transfer risk (the risk of government
non-payment/non-repatriation), currency
stability risk and the risks associated with
the regulatory and policy environment to
political factors, concerning institutions
and government stability, all of which have
particular relevance to corporate treasury
decision-making.
More than 400 economists and country
risk experts from a range of financial and
other institutions take part in Euromoney’s
Country Risk Survey. They evaluate the
risks faced by international investors in
186 markets worldwide, scoring countries
across a range of political, economic and
structural risk criteria. The ECR survey
combines these contributor assessments
on 15 of the most important risk factors
with other data regarding access to capital,
credit ratings and debt, to formulate an
overall score out of 100 (where 100 is
the least risky and zero the most). The
survey has been undertaken since late
1992 and is updated daily on a ‘real-time’
basis, with scores collated and aggregated
each quarter for comparison purposes.
It can therefore provide an early warning
indicator of emerging risks, distinct from
the sovereign credit ratings supplied by
the various ratings agencies. Further
information on the survey is available from:
www.euromoneycountryrisk.com.
“ As the risks surrounding Europe’s
debt problems mount, so the
rest of the world is also becoming
less safe – a worrying sign for
treasury managers