Newspaper article The Evening Standard (London, England)

Will the Latest Credit Downgrades Bring about Change? Yes, for Two Reasons

Newspaper article The Evening Standard (London, England)

Will the Latest Credit Downgrades Bring about Change? Yes, for Two Reasons

Article excerpt

Byline: Hamish McRae

[bar] O ratings agencies matter? The first test comes this week when we see how the markets digest the wodge of downgrades by Standard & Poor's. The headlines of course have been about France and Austria losing their AAA status. But of greater significance, given the amount of debt Italy has to raise in the next three months, is the fact it is now ranked the same as Ireland. Portugal has been downgraded to junk, but I think we knew that. And Greece -- well, the game has moved far beyond the rating agencies and is simply a question of the timing of a formal default.

The surprise was not the downgrading but the furious reaction from European politicians. They are behaving like petulant children. It wasn't fair -- if France was to be downgraded, Britain should be too. Europe must create its own ratings agencies instead of being dictated to by America. Europe must redouble its efforts to heap more austerity on its weakest economies. If the agencies don't matter, why allow yourself to show such irritation? There is a genuine puzzle here. Why should they apparently have any hold have over financial markets, following their catastrophic failure in giving AAA ratings to junk US mortgage debt? But now the agencies are following market movements more than leading them. For several weeks ahead of the downgrade, France was having to pay a full percentage point or more than the US, Germany (or even the UK) for 10-year funds. In the short term, the downgrades are a reflection of reality than groundbreaking new information. Past experience of countries that lose AAA ranking is that the downgrading adds a minuscule amount to their borrowing costs.

But the downgrades did flip the markets last week. Ahead of the reports, things were cantering along fine, with a growing consensus that the European Central Bank's flood of loans to the banks was easing Europe's money market pressure and to some extent helping weaker countries fund themselves. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.