“It’s going to be a long slog for Greece, maybe a decade. We don’t think Greece will leave the euro area.”
If it does, “whatever private-sector entities that haven’t yet defaulted would in the end default because their debt would be denominated in euros and their revenues would be denominated in the new drachma. Even that might be worth contemplating if you thought that we could keep the competitiveness gains that would stem from the devaluation. But if history is a guide, they wouldn’t keep the competitiveness gains for very long because the ensuing inflation eats it alive.
‘‘I don’t think we would have any rational sort of political actors that would choose to leave the euro zone. They can’t be expelled. But all bets are off if you have a long period of civil strife. That’s not our base case scenario.”
On the U.S. and its negative outlook:
“The Budget Control Act is being carried out. We had low expectations for the fiscal committee and those expectations were met. I don’t think anything’s going to happen between now and November. After November, regardless of who wins the election, you have a funny period between the end of the term and the beginning of the next, which all sorts of things could happen including the lapsing of the Bush tax cuts. If those lapse completely, which would be kind of an accidental outcome, it would give you major revenues over the next 10 years if that was left untouched.
‘‘You have very serious political paralysis which continues in the U.S. Although the Budget Control Act patches the problem up through the autumn, after that who’s going to guarantee you’re not going to have similar problems. Room for compromise between the Democrats and Republicans is not very big. The levels of revenue in the U.S. are low by most standards and the spending needs are extensive.
‘‘The outlook speaks to a time horizon of six to 24 months. What we probably said at that time, which I think still holds, is that if for any reason the Budget Control Act was watered down, that could put downward pressure on the rating, and if things converge that would counteract that.”
“I was getting fairly confident that there was very a small chance of that happening but in the last month or so, there’s talk actually about diluting the Budget Control Act. Of course, there could always be some countervailing factor not foreseen last August.”
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