Standard & Poor’s stripped the Netherlands of its AAA credit rating today. This ignominy means that the Dutch, now rated merely AA+, are considered less creditworthy than the Germans, on a par instead with the Americans.
Although considered part of the euro zone’s sturdy northern “core,” the Dutch economy has performed more like the wobbly southern “periphery” recently, with GDP set to shrink by 1.2% this year, according to S&P. The size of the Dutch economy won’t surpass its 2008 peak until 2017, reckons the ratings agency. Future growth will be weighed down by aggressive government austerity and falling house prices.
S&P also cut France’s rating earlier this month, to a notch below the Netherlands. Economist Holger Sandte of Nordea bank expects a gradual convergence of ratings among euro members, driven by French and Dutch-style downgrades rather than upgrades of lower-rated countries; Germany, Luxembourg and Finland are now the only members of the 17-nation euro zone with the top rating from all three leading credit agencies. S&P upgraded its outlook for Spain today, to “stable” from “negative,” but left its BBB- rating in place.
Not that any of this really matters. For widely held, extensively scrutinized bonds like those issued by the Dutch government, the opinion of one ratings agency doesn’t move markets much; Fitch and Moody’s, the other two big agencies, still give the Netherlands the top grade. Dutch bond spreads barely budged on the downgrade news, and continue to fetch lower yields than fellow AA+ rated America (as does AA rated France, for that matter).
Although it is somewhat facile to compare countries and companies, agencies like S&P rate them according to same scale, so why not? There are only four AAA rated corporates: ADP, Exxon Mobil, Johnson & Johnson and Microsoft. Thus, today’s downgrade means that S&P considers the Dutch government less creditworthy than Microsoft. Still, it did not exactly drop in with a bunch of deadbeats; among the companies rated AA+ is a certain Apple Inc.