The Corner

Moody’s Blues

Over at the Daily Telegraph Ambrose Evans-Pritchard discusses the recent attack by EU Commission boss Barroso on the ratings agencies, noting (amongst other things) that there was one teeny problem with Barroso’s claim that it was “strange” that none of them came from Europe:

Fitch is owned by the French group Fimalac (quoted on the Paris bourse) [and] it is largely run by Britons who belong to the EU and contribute to Mr Barroso’s salary,



And then there’s this: 

 My gripe against the agencies is not that they are downgrading all these semi-bankrupt states today, but that they totally failed to signal the inherent dangers of EMU a long time ago when the crucial investment decisions were being made. They too were swept up by euro euphoria. They too failed to understand the inherent structure of monetary union, or to spot obvious warning signs as the drama unfolded and the North-South divide became ever-more apparent. They handed out AAAs like confetti.

That is the great indictment of Fitch, S&P, and Moody’s in this sovereign saga, especially Moody’s (which has since replaced much of its French-led sovereign team). Moody’s still had a A3 rating on Greece in May 2010. Unbelievable.

I have great sympathy for the Portuguese. They did not have a demented credit and property boom during the roaring noughties (yes, they did earlier). They did not cheat on the deficit figures. They do indeed have bloated a public sector but basically the cause of their disaster is having locked into EMU in the mid-1990s before they were ready. They lost control of monetary policy and have been the victims of a dysfunctional currency union ever since.

Parts of their light manufacturing industry have been wiped out by Chinese imports, flooding Portugal at an exchange rate of 9 or 10 yuan to the euro. Portugal needs a 50pc devaluation against China.

One size did not fit all.

Meanwhile the European Central Bank has responded to the downgrading (by Moody’s) of Portugal’s debt to junk status as follows:

 LONDON (MarketWatch) — The European Central Bank said in a statement Thursday that its decision to suspend the minimum credit-rating threshold on Portuguese government debt used for collateral was based on a positive assessment of Portugal’s financial adjustment program and on the government’s strong commitment to its austerity measures. The ECB said the suspension will be maintained until further notice and that it applies to all outstanding and new marketable debt instruments issued or guaranteed by the Portuguese government.

 Do I hear the sound of a taxpayer screaming?


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