The reasons for the absence of completely risk-free sovereigns, despite the massive growth in sovereign tax capacity, are threefold.

Buiter On “Unnecessary, Undesirable and Unlikely” Sovereign Defaults, And The IMF's Triumph Of Dogma Over Evidence And Logic | ZeroHedge

"Buiter asks rhetorically if there are any completely safe sovereigns, and answers his own question:"

"The short answer is: no."

"We believe the common practice among financial analysts of treating the term structure of interest rates on the sovereign debt of most AEs countries as being free of default risk to be no longer appropriate, if it ever was."

"‘Rates analysis’ has to be done simultaneously with ‘credit analysis’. Japan lost its Moody’s Aaa rating in May 2009 and is currently rated Aa2. Moody’s downgraded Italy in May 2002 and it is currently rated Aa2 (see Figure 19)."

"Even the fiscally best-positioned G7 countries, Germany and Canada, face major fiscal challenges."

"Germany would not be able to join the Euro Area (EA) today, because it would fail to meet the deficit criterion (no more than 3% of GDP) and the debt criterion (no more than 60% of GDP).

"Indeed, the aggregate EA fails both criteria by wide margins, and of the 16 member states, only Luxembourg and Finland qualify on both criteria (see Figure 18)."


"The reasons for the absence of completely risk-free sovereigns, despite the massive growth in sovereign tax capacity, are threefold."

"First,

demand for public spending has grown even faster than the capacity to tax, and has outstripped the capacity to raise revenues in a way that:

(a) is politically acceptable and

(b) does not materially damage incentives to work, to educate oneself and to take risk as a saver, investor or entrepreneur."

"Second,

in a number of countries with high public debt burdens and large primary structural deficits, political polarisation has increased to the point that even if everyone recognises the unsustainability of the fiscal programme and the need for and desirability of early fiscal tightening, agreement on such a programme may be postponed as each interest group tries to minimize its share of the total burden of adjustment."

"Third,

as part of the widespread erosion of social capital (in the sense of trust between government and citizen, and between citizens), tax administration has become less effective in many advanced economies, with rapid growth of the shadow economy and in tax avoidance and tax evasion (see e.g. evidence in Schneider and Buehn (2002) and Figure 20)."