Dealing With Debt in Davos

Sovereign debt is taking Davos by storm. Global leaders here are zeroing in on debt solutions to ensure growth and prosperity for the road ahead.

CNBC spoke with Standard & Poor's Deven Sharma about the sovereign debt situation. Sharma sees a mixed picture for sovereign risk worldwide and he says that’s reflected in S&P's ratings. Sharma believes the fiscal positions of a number of EU governments have deteriorated sharply over the last two years, and many people have questioned the sustainability of current debt levels given the region’s relatively weak economic outlook. Right now, S&P is forecasting real GDP growth in the Eurozone of only around 2 percent in 2011 and 2012.

Davos 2011 - See Complete Coverage
Davos 2011 - See Complete Coverage

Sharma told CNBC "when you put these three things together: deficit, sovereign risk and economic growth, those three are good things to worry about and getting them cut in Europe are vital as part of a sequence.”

Despite concerns, Sharma says S&P sees improving credit risk in other regions — such as China, Indonesia and Peru. In terms of the direction of S&P's sovereign ratings, Sharma says "what matters most to us is not the absolute level of debt or deficits at any point in time, but the sustainability of a government’s financial position over time."

Donna Burton, Kerima Greene and Crystal Lau contributed to this blog.