Rating agencies are often too slow to change their outlook for the debt sustainability of governments. For instance, Greece was never really on a sustainable path, yet they gave them A-ratings for a very long time. In my opinion, the jump from AAA to BBB happens to fast and therefore A/AA/AAA-ratings have little predictive content.
So let me introduce my own measure of public debt sustainability. I tried to consider each countries’ scope for tax hikes and spending cuts. I give four different ratings, A, B, C, and F:
A: Debt financing is sustainable over the long-run, probability of default during the next 10 years is near zero.
B: Currently stable, but may become unstable, if increasing budget deficits or higher real interest rates on debt. Probability of default during the next 10 years may be higher than 10%.
C: Default may happen within the next 5 years without structural reforms that lower deficits and increase competitiveness. If you happen to live in such a country, it may be wise to park your money in another country.
F: Run as fast as you can.
So, here’s my list of rated countries (I don’t rate all countries; alphabetical order within one rating category):
A: Australia, China, Denmark, Finland, New Zealand, Norway, South Korea, Sweden, Switzerland
B: Austria, France, Germany, Netherlands
C: Belgium, Great Britain, Italy, Spain, USA
F: Greece, Ireland, Portugal
Disclaimer: This is just for information purposes. This is not a financial advice.