The curse of credit rating agencies

The economic destiny of nations is now in the hands of credit rating agencies Moody's, S&P's, Fitch. Unelected, unaccountable and with hugely inflated powers, they must be curbed, argues a Guardian columnist.

Published on 21 December 2010 at 10:47
Take that, Spain. Joaquin Phoenix as emperor Commodus in the Ridley Scott movie Gladiator (2000).

How many of Spain's 46 million population could tell you anything about the middle-aged German woman who holds their country's hard-won democratic sovereignty and economic future in her hands today; whose judgments will decide whether millions of hardworking Spaniards can stay in their jobs or pay off their mortgages through 2011 and beyond; and whose negative verdict on the Spanish economy would trigger not just a programme of austerity measures that would dwarf those already imposed on Greece and Ireland but could prove to be the beginning of the end for the eurozone itself?

Not many of them, one fancies, since the middle-aged German woman playing God over one of the greatest of all European nations is not Angela Merkel. The German chancellor is central to the battle to defend Spain that was again being fought out at today's Brussels EU heads of government summit. Yet she is not, it turns out, the person whose thumbs-up or thumbs-down can shape Spanish life for a decade or more.

That accolade belongs instead to the shadowy figure of Kathrin Muehlbronner, a polyglot economics graduate of the university of Tübingen who, it is tempting to say, may exert more reactionary influence over Spanish life than any woman since Queen Isabella drove out the Moors, expelled the Jews and put the Inquisition at the centre of the nation more than half a millennium ago. How so? Muehlbronner is a vice–president and senior sovereign risk analyst specialising in Spain at Moody's credit ratings agency. That makes her the woman whose say-so can plunge Spain into the unknown by the simple act of declaring that Europe's fifth largest economy no longer merits its Aa1 rating.

This week Muehlbronner stopped short of actually pulling the lever that will dump Spain through the trapdoor into a fiscal torture chamber that would have done credit to Torquemada himself. "Moody's believes that the downside risks warrant putting Spain's rating under review for downgrade," Muehlbronner pronounced with her hand on the lever – whereupon the euro and the stock market both fell. A moment later she relaxed her grip. "Moody's does not believe that Spain's solvency is under threat," she conceded, whereupon both euro and markets rallied a little. Read full article in the Guardian...


Playing the fear game

Seeing the European economic crisis as a conflict between politics and finance doesn’t quite sum up the problem, warns German weeklyDie Zeit. Elected officials and the markets “have long shared a single destiny, even despite themselves." The influence of speculators on state bond markets is often weak, it adds: “(R)ather than greed, it’s fear that moves markets”.

The principal players are banks, which invest in the name of insurance companies or pension funds. The latter rarely disinvest in order to attack a country but will do so out of fear of losing their clients’ money. In the case of Greece, Ireland or Portugal, “we witnessed a strike by investors rather than wild speculation,” according to Klaus Regling, chief executive of the European Financial Stability Fund.

And therein lies the problem. Because while “governments may be able to put a stop to the activities of financial players, fearful investors want to be understood,” Die Zeit says. Therefore when they analyse a country, “fund managers think more in terms of possible scenarios than of facts” and thus create mass movements engendered by fear. That leaves European leaders with but a single option, the paper concludes, “they must take their cue from the hero of a Western: act first, talk later”.

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