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“We are not talking about revolution, but the severity of the crisis will force governments to make painful choices that expose weaknesses in society,” he said.
If countries tighten too soon, they risk stifling recovery and making maters worse by eroding tax revenues: yet waiting too is “no less risky” as it would test market patience. “At the current elevated debt levels, a rise in the government’s cost of funding can very quickly render debt much less affordable.”
Moody’s said Britain has been slower than Spain to “rise to the challenge” and may be at greater risk of smashing through buffers of AAA creditiblity if rates suddenly rise. Spain made errors at the outset of the crisis but has since become a model pupil, pledging to cut the budget deficit from 11.4pc of GDP to 3pc by 2013.
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