James Moore: Moody's wakes up to EU's woes but it has little clout these days

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The Independent Online

Outlook Act quick, sell off your bonds! Moody's has put the European Union's AAA credit rating on negative outlook. Yes, ever quick off the mark, the number two credit agency appears to have worked out that there are one or two problems with debt on the continent.

The EU doesn't itself issue bonds. They'd probably be called eurobonds and they'd be collectively be guaranteed by member states (for which read Germany, which is the only one with the financial might to do that). Had the eurozone's chancelleries agreed to their creation we might actually be in a rather sunnier situation.

All the same, the EU does have a budget, spends quite a lot of money and occasionally needs to borrow. The stunning revelation that Moody's has unearthed is that the EU's big guns – that's Germany, France, Italy (tee hee), and sterling-denominated Britain – aren't likely to be willing to guarantee the EU's debts if things get sticky because they'll be too busy worrying about themselves.

Which is pretty much what's been going on for the past couple of years anyway, the reason why Britain stayed out of the euro in the first place (wisely as it turns out) and the reason why the Continent's finances are still in such an awful mess.

It's true that the markets these days place far less reliance on credit agencies than they used to. Bond yields moved a little bit in response to the announcement, but it was sotto voce. You can imagine what the bond traders were saying: "Oh look, Moody's has said something mildly gloomy about the EU's debt now. Better mark the prices down or they'll be upset."

These days the opinions of rating agencies have very little real impact and that's probably a good thing given the way they seemed willing to hand out AAA ratings (Aa1 or something similarly unwieldy in Moody's speak) to any banker who turned up with a chequebook, a Savile Row suit and portfolio full of subprime home loans if they called it something clever like a "special purpose vehicle" or some other brand of gobbledygook.

But people still like to use their services. Why? It seems like a rating from one of the big boys has become like a passport. It'll get you on the plane and into the arrivals lounge. But if the chap on the immigration desk has any suspicions he'll call in the experts who actually know what they're doing because he'll be well aware that just because the passport says you're John Smith, it doesn't mean you actually are.

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