"It is hard to imagine that, having downgraded the US, S & P will not follow suit on at least one of the other members of the dwindling club of sovereign AAAs. If this were to materialise and involve a country like France, for example, it could complicate the already fragile efforts by Europe to rescue countries in its periphery"
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The chill in El-Erian's phrasing is deliberate: this is a warning dressed up as a thought experiment. By calling AAA-rated sovereigns a "dwindling club", he turns a technical credit label into a social category with status, gatekeepers, and the implied shame of expulsion. The point isn't just that ratings can fall; it's that prestige is now precarious, and markets have started treating top-tier governments less like untouchable pillars and more like participants in a confidence game.
Context matters: this lands in the post-2008 era, when S&P's U.S. downgrade cracked the assumption that advanced economies were beyond the discipline imposed on emerging markets. El-Erian leverages that shock to sketch a contagion pathway: if the U.S. can be cut, why not another AAA? Mentioning France is not incidental. France functions as Europe's "core" anchor; if that anchor wobbles, the whole rescue architecture for the eurozone periphery (Greece, Portugal, Ireland, later Spain/Italy pressures) gets more expensive and politically harder to sell.
The subtext is about reflexivity. Ratings aren't merely descriptions; they can become triggers. A downgrade raises borrowing costs, strains bank balance sheets, tightens collateral rules, and shrinks the firepower of bailout funds that depend on core-country credibility. "Could complicate" is cautious language for a harsher reality: Europe's crisis management was already a high-wire act, and the net was made of AAA assumptions. El-Erian is essentially saying the adults in the room are playing with matchsticks, and the room is full of gasoline.
Context matters: this lands in the post-2008 era, when S&P's U.S. downgrade cracked the assumption that advanced economies were beyond the discipline imposed on emerging markets. El-Erian leverages that shock to sketch a contagion pathway: if the U.S. can be cut, why not another AAA? Mentioning France is not incidental. France functions as Europe's "core" anchor; if that anchor wobbles, the whole rescue architecture for the eurozone periphery (Greece, Portugal, Ireland, later Spain/Italy pressures) gets more expensive and politically harder to sell.
The subtext is about reflexivity. Ratings aren't merely descriptions; they can become triggers. A downgrade raises borrowing costs, strains bank balance sheets, tightens collateral rules, and shrinks the firepower of bailout funds that depend on core-country credibility. "Could complicate" is cautious language for a harsher reality: Europe's crisis management was already a high-wire act, and the net was made of AAA assumptions. El-Erian is essentially saying the adults in the room are playing with matchsticks, and the room is full of gasoline.
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| Topic | Money |
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