Canada's Lesson on Regaining Sterling Credit
To get our AAA rating back, the U.S. should look north to the 'Maple Leaf Miracle'
It's been a tough economic week since the credit rating agency Starndard & Poor's knocked down the U.S. credit rating from AAA to AA+ on August 5. But Friday is looking good, market-wise, and as Sarah Kliff reports in the Washington Post, it's not impossible for the nation to get back its coveted top-notch credit rating, either. Canada did it, as did four other countries. The prime example on how to turn around an debt crisis comes from our neighbor to the north, which saw its economy and employment tanking from 1990 to 1993.
Facing an unprecedented fiscal crisis, Canada got down to work. The country passed a landmark budget in 1995. The plan tilted heavily towards cutting expenditures but also included some new revenue (the ratio was about $7 in cuts for every $1 of revenue). Canada cut the civil service by about 25 percent and overhauled its pension program. The plan worked. Canada is now on much more financially-sound footing; S&P restored its AAA rating in 2002. The turnaround is now referred to, in some economic literature, as “The Maple Leaf Miracle.”
Obviously a U.S. plan will be different in its specifics, but the five nations that have turned around their credit ratings after a downgrade have this in common: "Regaining a top credit rating required big, structural changes - no tinkering around the edges. All included some combination of spending cuts and revenue raisers, although tended to lean more heavily on the former."