David Prosser: Eurozone leaders have found convenient fall guys in the credit ratings agencies
Outlook 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 isproceeding much more quickly against a convenient bunch of fall guys – the credit rating agencies.
The announcement yesterday by Michel Barnier, the 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 over the chaos going on all around them. Rather than address the problems in the banks and countries that the agencies rate, Mr Barnier chooses to target the bearer of bad news.
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 the industry 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 byannouncing a downgrade of France, only to say within minutes that 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 continue 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 European Union-backed credit ratings agency to provide an alternative narrative. That would be a mistake – for one thing, the biggest agencies already have competitors, both locally and from markets such as China. For another, no one would trust the verdict of a ratings agency 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 inconvenientmoment 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 – they are paid to provide a commentary on the changing nature of creditworthiness.
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 European Union 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 bail-outs of member states would not be necessary, he may just be able to see why that is the case.
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