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The political motivations of Standard & Poor’s

First they downgraded America. Now it is the turn of the eurozone. Standard & Poor’s is well aware of the weight financial markets attach to its pronouncements, and of late has developed the alarming habit of timing them to maximise their impact.

Nicolas Sarkozy and Angela Merkel have issued a statement, noting curtly that they ‘take note’ of the ratings agency’s decision to put France, Germany and 13 other countries on credit watch, implying a 50% chance of a downgrade in the next six month.

But the two leaders are almost certainly furious at this intervention, which just two days ahead of a summit meeting in Brussels later this week that is widely seen as the single currency’s last best hope.

The very real outcome of a downgrade would be to make it more expensive for the European Financial Stability Facility bailout fund to borrow on the back of bonds, leaving less cash to assist indebted countries.

What’s more, if the sovereign debt is downgraded, many corporates will be downgraded, too. What S&P have done this morning damages virtually every bank in Europe.

Eurozone leaders’ private anger will be on a par with that felt in the White House in August, after S&P downgraded the US to AA+, branding the Obama administration ‘less stable, less effective and less predictable’ at a time when the country was on the brink of technical default.

S&P may well excuse its actions with the ‘only doing our job’ defence. The company earns its crust by rating bonds, so rate bonds it must, the argument will run. If market participants choose to act on their counsel, then so be it.

But it is worth noting that there is no particularly objectivity to S&P’s output. Its judgements represent are based entirely on opinion, resting on a set of ideological assumptions.

As David Wyss, chief economist at S&P until earlier this year, noted in a recent newspaper interview: ‘The credit agencies don’t know any more about government budgets than the guy in the street who is reading the newspaper.’

There are even questions about S&P basic competence at what it does. Like its rivals, it routinely ascribed AAA standing to highly risky collateralised debt obligations that proved impossible to value on any meaningful basis.

What we are now seeing is a further illustration that much power under capitalism rests not with elected politicians, but private sector interests promoting their own agenda. S&P is effectively pushing its own brand of neoliberalism.

I was just about to add ‘… without any regard to the consequences’ to that last sentence. But on second thoughts, that would be wrong. It knows damn well what the consequences will be, and is actively willing them.

One Comment

  1. Syzygy says:

    This really is a ‘game of chicken’. Merkel has the 17 EU countries across a barrel to push through her fiscal integration but has to risk a second credit crunch as banks are reluctant to lend to the bond markets because of the risk of default or ‘haircuts’. None of this has anything to do with real money. The trillions owed globally really did grow on the magic money tree, and will not be paid back. Standard & Poors actions are just another aspect of the ‘Alice in Wonderland’ neoliberal financial mythology.. but as David Osler implies they have a political agenda. If the EU breaks up, Wall Street will need to be bailed out again and Obama will definitely be replaced by one of the Republican hopefuls (shudder).

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