The move by Standard & Poor’s yesterday putting 15 euro zone countries on credit watch was criticized by European Central Bank Governing Council member Ewald Nowotny of Austria. He said in an interview that it “highlights the problem that rating agencies increasingly are assuming a political role.”
“There is no doubt that rating agencies have an economically important role to play, but the way in which this is happening at the moment is increasingly problematic as it creates pro-cyclical effects, that means effects that make the crises worse,” Nowotny said.
The S&P ratings firm put Germany, France and 13 other euro-area nations on review for a downgrade yesterday, saying “continuing disagreements among European policy makers on how to tackle” the region’s debt crisis risk damaging their financial stability. The move came four months after S&P cut the U.S. to AA+, saying “extremely difficult” political discussions over how to reduce America’s more than $1 trillion budget deficit tainted the credit quality of the world’s largest economy.
Grades may be lowered by one level for Austria, Belgium, Finland, Germany, Netherlands and Luxembourg, and as many as two steps for the other governments if the summit results don’t satisfy S&P’s criteria, the agency said.
“The upcoming European summit,” S&P said in a report, “provides an opportunity for policy makers to break the pattern of what we consider to have been defensive and piecemeal measures to date, overcome individual national interests and preferences, and advance a credible response to the crisis that would go far towards restoring investor confidence.”