Fears of US, Japan sovereign default

London: Fears of a sovereign default are “manifest” in Europe and will soon spread to Japan and the US, as governments struggle to control deficits, according to Citigroup Inc economists led by former Bank of England policy-maker Willem Buiter.

“Despite the recent drama, we believe we have only seen the opening and second act, with the rest of the plot still evolving,” London-based Buiter and colleagues wrote in a research note.

“There is absolutely no safe” sovereign.

The warning comes after the threat of default forced Greece and Ireland to seek bailouts, and as borrowing costs for Portugal this week surged at a six-month bill sale, as investors speculate it will be next to seek aid.

Elsewhere, US lawmakers last month extended tax cuts and are now wrangling over whether to raise the nation’s debt limit, while Japan’s public debt is set to exceed twice the size of the economy this year.

“The US and Japan likely cannot continue to ignore the issues of fiscal sustainability,” said the Citigroup economists, who added that it’s “only a matter of time” before the US government can only fund itself through debt issuance at “significantly higher interest rates”.