Moody’s Investors Service warns that the U.S., U.K., Germany and France need to clamp down on health care and pension expenditures in order to stabilize their debt structure over the long term.
“All four countries face dramatic increases under their existing policy commitments arising from aging-related pension and health-care subsidies,” the ratings agency. “Future costs must be brought under control if these countries are to maintain long-term stability in their debt-burden credit metrics.”
All four nations currently have Moody’s highest debt rating of AAA – as such, it is more incumbent upon them to get their financial houses in order as soon as possible.
Moody’s noted how the U.S. and Europe are taking dramatically different stances on their debt problems.
“With respect to shorter-term considerations, the U.S. has taken a different approach than the other three in its response to the economic and fiscal problems,” Moody’s wrote.
“The U.K.’s coalition government has introduced a strong program of deficit reduction to address the steep increases in government debt as a result of the financial crisis.”
Indeed, the U.S. government extended Bush-era tax cuts across the board as well as unemployment insurance for 13 months, while reducing certain payroll taxes.
In stark contrast, David Cameron’s government in Britain has imposed severe spending reductions and raising taxes. Other countries in Europe have made similar austerity measures to try to tackle their debt issues.
“France and Germany recorded significant debt increases, but have on balance moved toward deficit reduction, France less aggressively so than Germany,” Moody’s said.
Moody’s assured however there there existed no risk of a downgrade in ratings for these four powerful nations, citing that they “still possess debt metrics, including the debt affordability” to maintain their AAA ratings.