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G7 & Debt Dynamics John Chambers Managing Director & Chairman, Sovereign Rating Committee Standard & Poor's National Association for Business Economists January 28, 2010 Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. Copyright (c) 2008 Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved. Comparative Default Rates Basel II Cumulative Default Rate Benchmark Comparison with Sovereign Foreign Currency Default Rates AAA AA A BBB BB B Basel II Benchmarks 10-year average of 3-year CDRs 10-year average of 3-year CDRs 2000-2009 Long Run Reference 0.00 0.01 0.00 0.01 0.00 0.03 1.39 1.00 4.57 7.50 6.71 20.00 *Last year in the static pool. ** Calculated using 10, three-year cohorts beginnng Jan, 2000 and ending Dec, 2009. CDR - Cumulative default rates. Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 2. Five-Year Transition Rates Sovereign Foreign Currency Average Five-Year Transition Rates 1975-2009* Rating five years later (%) Ratings as of # of January 1 counts AAA 356 AA 208 A 169 BBB 161 BB 183 B 131 CCC/CC 14 AAA 89.04 19.23 0.00 0.00 0.00 0.00 0.00 AA 9.83 74.52 15.98 0.00 0.00 0.00 0.00 A 0.00 4.81 67.46 39.13 2.19 0.76 0.00 BBB 0.00 0.96 14.79 46.58 20.22 6.87 0.00 BB 1.12 0.48 1.18 7.45 60.11 22.90 7.14 B 0.00 0.00 0.59 1.86 9.29 48.85 14.29 *Implied Senior debt rating though 1995, sovereign credit ratings thereafter. Source: http://creditpro.standardandpoors.com Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 3. CCC/CC 0.00 0.00 0.00 0.62 0.55 5.34 7.14 SD 0.00 0.00 0.00 4.35 7.65 13.74 71.43 NR 0.00 0.00 0.00 0.00 0.00 1.53 0.00 G-7 Rating Movement Rating USA AAA/Stable UK AAA/Negative France AAA/Stable Germany AAA/Stable Italy A+/Stable Canada AAA/Stable Japan AA/Negative 2005 2006 2007 2008 2009 2010 Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 4. Net General Government Debt: 2005, 2009 120% 100% 80% 60% 40% 20% 0% Italy Japan Germany 2005 France U.K. 2009 Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 5. U.S. Canada Labor Costs 2008 vs 2000 change in Unit Labor Costs (in National Currencies, subsidy adjusted, US Bureau of Labor Statistics, Eurostat data) 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Japan Germany United States UK France Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 6. Canada Italy Forecast of Real GDP Growth Rates (%) 5 4 Germany 3 2 France 1 Italy 0 -1 2008 2009 2010e 2011f 2012f UK -2 USA -3 Japan -4 Canada -5 -6 Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 7. General Government Budget Balance: 2008-2012f Germ any France Italy U.K. U.S. Japan Canada 4 2 0 -2 -4 -6 -8 -10 -12 -14 2008 2009 Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 8. 2012f Base case cost of financial sector recapitalization, 2009 Base recapitalisation costs (% GDP) 12 10 10 8 5.5 6 4 1.7 2 0.7 0.5 0 0 Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 9. an ad a C Ja pa n Fr an ce er m Ita ly an y K U G U SA 0 Net General Government Debt: 2009-2012f 120% 105% 90% 75% 60% 45% 30% 15% Italy Japan Germany 2009 France 2010e U.K. 2012f Permission to reprint or distribute any content from this presentation requires the prior written approval of Standard & Poor’s. 10. U.S. Canada