The year of the sovereign debt crisis.

TIE ASKED a number of top thinkers to focus on the outlook for sovereign debt. How likely are countries in the eurozone's periphery (Greece, Ireland, Portugal, and Spain) to default outright or face significant "haircuts" on their sovereign debt over the next three to five years? What is the probability in the next three to five years that any of the major industrialized countries (the United States, Japan, Germany, France, and the United Kingdom) lose their top ratings *? And how might the increased prospect of default in the eurozone periphery and the loss of triple-A ratings in the major industrialized countries affect the global economy?

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DESMOND LACHMAN

Resident Fellow, American

Enterprise institute

The seriousness of any intensification of the eurozone debt crisis for the global economic recovery should not be underestimated. This crisis has the potential to deliver a major blow to the European banking system, which is the main holder of the European periphery's US$2 trillion in sovereign debt obligations.

Over the next twelve to eighteen months, there is every prospect that Greece and Ireland will choose to restructure their sovereign debt. They will do so as their economies sink further into the deepest of recessions under the weight of the draconian fiscal adjustment being imposed on these countries by the International Monetary Fund and the European Union within the straightjacket of their euro membership.

A Greek or Irish sovereign debt restructuring would constitute the largest such restructuring in history. It would also more than likely result in an escalation in contagion to Portugal and Spain, since both of these countries have extraordinarily large external financing needs in 2011.

A banking crisis in Europe, coupled with a renewed European economic downturn, will have serious implications for the global economic recovery. In particular, it would heighten the risks of a petering-out in the U.S. economic recovery, since it would come at precisely a time when U.S. unemployment remains unusually high, the fore closure crisis continues unabated, and international oil prices are again at high levels.

A deepening in the European crisis must be expected to result in a further weakening in the euro, which would put U.S. exporters at a competitive disadvantage, since it would heighten existential questions about the euro. It must also be expected to result in an increased degree of global risk aversion given the great degree of interconnectedness of the world's financial system.

Likelihood of default or "haircuts" on the periphery? Greece: [check] Certain Ireland: [check] Certain Portugal: [check] Certain Spain: [check] Probable Major industrial countries losing their top rating? United States: [check] Probable Japan: [check] Certain Germany: [check] Won't happen France: [check] Probable United Kingdom: [check] Probable [ILLUSTRATION OMITTED]

BARTON M. BIGGS

Managing Partner, Traxis Partners

Praise the Lord and pass the ammunition.

The check-marks tell the story, or at least my view of the story. Too many words have already been written as to the whys I and wherefores. Praise the Lord and pass the ammunition.

Likelihood of default or "haircuts" on the periphery? Greece: [check] Certain Ireland: [check] Certain Portugal: [check] Certain Spain: [check] Unlikely Major industrial countries losing their top rating? United States: [check] Won't happen Japan: [check] Probable Germany: [check] Won't happen France: [check] Unlikely United Kingdom: [check] Unlikely LOUIS BACON

Founder, Chairman, Chief Executive Officer, and Principal Investment Manager, Moore Capital Management

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Likelihood of default or "haircuts" on the periphery? Greece: [check] Certain Ireland: [check] Certain Portugal: [check] Probable Spain: [check] Unlikely Major industrial countries losing their top rating? United States: [check] Won't happen Japan: [check] Probable Germany: [check] Unlikely France: [check] Probable United Kingdom: [check] Unlikely SAMUEL BRITTAN

Columnist, Financial Times

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Obstinate refusal to write down debt is the greater threat. Alas, I don't rate rating agencies. The most important policy aim should be to free market economies from bondage to financial market prejudices.

Likelihood of default or "haircuts" on the periphery? Greece: [check] Probable Ireland: [check] Unlikely Portugal: [check] Probable Spain: [check] Probable Major industrial countries losing their top rating? United States: [check] Won't happen Japan: [check] Won't happen Germany: [check] Won't happen France: [check] Unlikely United Kingdom: [check] Unlikely ROBERT K. STEEL

Deputy Mayor for Economic Development, New York City, and former Undersecretary for Domestic Finance, U.S. Treasury

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Likelihood of default or "haircuts" on the periphery? Greece: [check] Probable Ireland: [check] Probable Portugal: [check] Probable Spain: [check] Probable Major industrial countries losing their top rating? United States: [check] Won't happen Japan: [check] Unlikely Germany: [check] Unlikely France: [check] Unlikely United Kingdom [check] Unlikely KARL OTTO POHL

Former President, German Bundesbank

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Likelihood of default or "haircuts" on the periphery? Greece: [check] Unlikely Ireland: [check] Unlikely Portugal: [check] Unlikely Spain: [check] Unlikely Major industrial countries losing their top rating? United States: [check] Won't happen Japan: [check] Won't happen Germany: [check] Won't happen France: [check] Won't happen United Kingdom: [check] Unlikely JIM O'NEILL

Chairman, Asset

Management, Goldman Sachs International

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There is growing evidence of accelerating global recovery, and if there is a surprise this year, it might be that the developed countries, led by the United States, will positively surprise. We may see a number of quarters of 3 percent to 4 percent or more real GDP growth in the United States. If this is correct, the size of some fiscal deficits will come down as government revenues grow and spending becomes less pressured. In this context, I personally believe that the risk of government defaults threatening the recovery is a somewhat exaggerated fear. By the way, unless I missed something, Japan lost its AAA status many years ago! If there were to be problems, then the country that concerns me most is actually Japan, not the United States.

Likelihood of default or "haircuts" on the periphery? Greece: [check] Unlikely Ireland: [check] Unlikely Portugal: [check] Unlikely Spain: [check] Won't happen Major industrial countries losing their top rating?

United States: [check] Unlikely Japan: Already AA- Germany: [check] Won't happen France: [check] Probable United Kingdom: [check] Unlikely TADASHI NAKAMAE

President, Nakamae

International Economic Research

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Japan's fiscal woes are no secret, but its currency is the strongest and its government bonds are the most secure, as witnessed by the fact that its yields are the lowest in the world. Moreover. unlike the United States. Britain, France. and Germany, Japan's government bonds are mostly held by domestic rather than foreign investors, who as stakeholders are unlikely to cause their country to default on its debt.

Thus, if credit ratings truly reflect default risk, it is ridiculous that Japanese government bonds (JGBs) are rated AA-minus, while the other G4 countries are still rated AAA. Over the past decade or so, investment banks and hedge funds have constantly tried to make money by short-selling JGBs (on the assumption that Japan's fiscal troubles would cause yields to rise), neatly enabled by credit rating agencies, whose reports backed up their beliefs. Yet these short sales rarely, if ever, turned out to be profitable as JGB yields sunk to ever-lower record-breaking levels.

If credit rating agencies were to lower the ratings of the remaining G4 countries equal to that of Japan--or lower--they might regain some credibility and legitimacy.

As fiscal deficits balloon, countries become increasingly incapable of funding their debt. This then shatters the myth that free-spending Keynesian demand-side policies are the answer to today's problems. For countries that can shift to supply-side policies that enable the private sector to become more efficient and...