Europe has spent the better part of two years grappling with a slow-motion debt crisis, and has had alarmingly little success in doing so. Could the problem be the ineptitude and shortsightedness of continental leadership? Of course not — it must be the fault of the evil rating agencies. The FT reports:
Under one of the most contentious proposals, European regulators would be given powers to suspend credit ratings of countries undergoing bail-outs.
On top of restructuring the business practices of the industry, the reforms propose giving wide-ranging powers to Esma, the European markets regulator, to approve ratings methods and ban sovereign ratings in “exceptional situations”.Esma would be able to suspend ratings of countries in bail-out programmes so that adverse ratings are not issued at “inappropriate moments”.
This is the most flagrant example of shooting the messenger we’ve seen in quite a while. Of course credit downgrades have been hurting Europe for the past two years, but these are simply a reflection of economic reality. Greece’s credit was not downgraded due to malice on the part of large corporations — it was downgraded because it had accumulated massive debts that it was unlikely to pay back. Similarly, if EU rescue packages have done little to improve the credit ratings of troubled European countries, this is likely because they are timid and ineffective, and not because Moody’s has it in for Europe.The real scandal hasn’t been malicious and destructive downgrades by credit agencies; it was their failure to blow the whistle early on. Ratings agencies were asleep at the switch when it came to US subprime mortgages and European subprime countries. If anything, serious reform of the ratings agencies would make them tougher and meaner.Telling the truth about shaky debtors isn’t a crime, and if Brussels goes ahead with these hare brained schemes, Europe’s problems will get worse and be harder solve.