S&P’s downgrade of a bunch of European sovereigns was no surprise. What was somewhat surprising — and which went unmentioned in almost all the news stories I’ve read — was why S&P has gotten so pessimistic. From their FAQs:
We also believe that the agreement [the latest euro rescue plan] is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the EMU’s core and the so-called “periphery”. As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.
And today we read about the response:
German chancellor Angela Merkel has called on eurozone governments speedily to implement tough new fiscal rules after Standard & Poor’s downgraded the credit ratings of France and Austria and seven other second-tier sovereigns.
Still barreling down the road to nowhere.
© 2011 New York Times
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Why is it such a surprise that S & P have downgraded France's credit rating? It is a distortion of the truth to imply that S & P are well-meaning objective analysts who have become 'pessimistic' about France's debt level. The Rating Agencies, it should always be remembered, are the lackeys of Wall Street, Hedge Funds and the capitalist oligarchy : their real job is to pick off sovereign countries one by one by lowering their ratings so that the victim countries then have to pay higher interest on their borrowings. And who benefits from that higher interest? Surprise, surprise! — the Wall Street investors, the big Banks, the Hedge Funds, etc. The Ratings Agencies are nothing more than criminal predators, prepared to destroy the economies of whole nations, throw millions out of work, force the sale of public assets at fire-sale prices and leave the carcass for their cronies to pick at, leaving the economic, human and social wreckage for governments to contend with.
The case for concerted international regulation of the Rating Agencies is stronger than ever, because their destructive behaviour is more blatant than ever. But since they hide under the cloak of the 'Free' Market, and because no US government would have the courage to reign them in, it is high time that the EU provided the necessary leadership and established a fully independent European Rating Agency to give the US vultures a run for their money.