Here we go again: if in doubt, shoot the messenger. While the eurozone's leaders continue to argue about the best way to resolve the crisis stalking the single-currency bloc, action is proceeding much more quickly against a convenient bunch of fall guys – the credit ratings agencies.
The announcement yesterday by Michel Barnier, Europe's internal market commissioner, of new rules for the ratings agency sector is a classic example of how European Union officials so like to bury their heads in the sand while chaos is going on all around them.
That is not to defend the quality of the work these agencies have done. It is obvious to all that the clean bill of health they gave all that collateralised sub-prime debt in the run-up to the credit crisis was a shocking mistake. Errors of one kind or another continue to this day – only last week, Standard & Poor's caused a panic by announcing a downgrade of France, only to say within minutes the whole thing had been a mistake.
We do, however, need independent agencies to rate the creditworthiness of those who borrow money, from governments to the corporate sector. In the end, S&P and the rest will stand or fall on their ability to persuade clients to keep paying for their services – and if they keep getting it wrong, they won't manage that.
There have been suggestions that there should be some sort of EU-backed credit ratings agency to provide an alternative narrative. That would be a mistake – for one thing, the biggest agencies already have competitors. For another, no one would trust the verdict of a ratings agency which was not seen as independent.
It is true, as Mr Barnier complains, that credit ratings agencies continue to cause market volatility with their pronouncements, which often seem to come at the most inconvenient moment for the commissioner and his colleagues. But it is not the job of these agencies to time their statements to be helpful, or to worry about the effects of what they say.
The markets will take their own view on such statements, of course. And what really irks Mr Barnier is that lenders are more inclined to listen to these agencies than to those EU governments that insist they are on top of their borrowing commitments.
It may seem odd that an industry with such a tarnished record of late is more trusted than the governments of Europe, or the Continent's most senior bankers. But if Mr Barnier reflects on the veracity of past Greek disclosures to the eurozone's statistics agency, for example, or even the repeated assurances from around Europe that bailouts of member states would not be necessary, he may just be able to see why.Reuse content