Dagong warning over debt crisis

The debt load of the world's rich countries, notably Europe, will become "even more unsustainable" in 2012, Chinese firm Dagong Global Credit Rating Co Ltd said today.

The ratings agency warned in its 2012 Global Sovereign Risk Outlook that the sovereign debt crisis in the euro zone will be "persistent and complicated" and may develop into a currency crisis.

The agency, one of four big rating agencies in China, said the existing schemes to rescue European countries, including the €440 billion European Financial Stability Facility (EFSF) and the upcoming European Stablility Mechanism (ESM) with an initial capacity of €500 billion , are insufficient, and said that the European Central Bank will have to assume a bigger role.

"As the reliance on over-issuance of currency to sustain the banks and governments on the edge of bankruptcy (increases), the credibility of the euro will fall and inevitably lead to the selling of the euro due to the collapse of external confidence," Dagong said in its outlook.

The relatively young Chinese rating agency, whose sovereign rating of 72 countries around the world are not widely used by investors outside of China, has set out to challenge the dominance of western houses like Moody's and Standard & Poor's.

Although some of Dagong's credit assessment proved to be controversial, including its A rating for the United States that was lower than its A-plus rating for the Czech Republic, its downgrading of some European countries proved far-sighted.

Dagong had downgraded Italy and France a whole month before Standard & Poor's announcement of its mass credit rating downgrade of euro zone nations.

Reuters