Perspectives: Credit Ratings Should Not Be Used/Abused As Bad Crutches (7/26)

The recent events in the eurozone have raised questions about the appropriate role of independent credit ratings in the financial system and prompted a flurry of suggestions from European policymakers, from intervening in ratings methodologies to suspending certain sovereign ratings.

The bigger question for the financial system is how ratings are used by regulators and policymakers. Their reliance on ratings in determining regulatory and policy decisions may be encouraging excessive focus on rating agency opinions.

Deven Sharma – president of Standards & Poor’s – explores the right way to use the agencies in a July 25. Financial Times article that you can read here (or here). What is needed, according to Sharma, is a more thoughtful way to reduce what some perceive as the excessive influence of ratings in financial markets and the financial policy process.

He says that rating agencies do not claim to be the sole voice expressing reasoned views about the future. (The Federal Reserve appears to agree as it said on Monday (25 July) that the U.S. government is trying to reduce any undue reliance on credit ratings.)

The head of S&P believes that a better approach is to drop regulatory mandates to use ratings and avoid making ratings the sole criteria for policy decisions. That would reduce their impact on markets and on public policy. And it would free rating firms to compete entirely on quality. Investors, in turn, would have the discretion to choose which are useful and which are not, without being compelled to refer to particular benchmarks by regulatory or policy measures.

Standard & Poor’s is a subsidiary of McGraw-Hill Companies – a corporate member of the European Institute.

Perspectives is an occasional forum of The European Institute reflecting member views on topical issues.

 

Perspectives: Priorities of Polish Presidency of EU (7/22)

Poland has taken over the rotating presidency of the EU for the first time since it joined the bloc in 2004. Poles are largely "pro-Europe" and are enjoying an economic growth rate of about 3.5%.  So even though the country is not part of the eurozone, Poland has indicated that it will use its six months in the EU guidance role both to strengthen the single market and help set up the next EU budgets with more sources of revenue. The group, Cicero Consulting, says that Warsaw will also pursue reforms in economic governance, including the implementation of new regulatory authority for improved EU-wide oversight in banking and broader financial services. There are also new taxation issues for the EU to be tackled by the Polish presidency. Cicero has produced a clear outline of these challenges in a report to be read here.

Cicero Consulting is a member of The European Institute.

Perspectives is an occasional forum of The European Institute reflecting member views on topical issues.

 

"Bail-out 2.0" for Greece Set by Eurozone; Step Risks Temporary Default by Athens (7/21)

Leaders of the eurozone countries have agreed a new bailout package for Greece worth 109bn euros ($155bn). It includes, for the first time, support from private lenders, including banks, which will give Greece easier repayment terms.

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"Bail-out 2.0" for Greece: Emergency EU Meeting Has New Ideas (7/20)

Ahead of an emergency eurozone meeting on a second Greek bail-out on July 21 in Brussels, a mix of new options has emerged in an effort to shift part of the costs to creditor banks – without triggering a default call by international ratings agencies.

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French Feminism Appears Re-Energized by DSK Affair of Alleged Rape (7/18)

The “DSK affair” of alleged rape seems to have triggered a feminist awakening in France. Women’s organizations that had fallen out of view suddenly are getting renewed attention in the political sphere and the media. Suddenly, issues like rape, incest and sexual harassment have become worthy of public debate, according to the New York Times' Elaine Sciolino, author of a new book about France entitled "La Seduction."

More quietly, militancy about women’s rights already had been regaining ground in France in recent years, but the focus then was mostly on the poorer Arab-dominated “banlieues” where women’s basic rights have often been suppressed. Forty feminist organizations met at a conference in the Paris suburb of Évry and pledged to make the war against rape their main cause in the coming year.

-- European Affairs

 

U.S. Space Shuttle Termination May Lead to Joint Project with EU's ESA (7/13)

The space shuttle Atlantis – an iconic vehicle in the history of U.S. aerospace activity – lifted off on its last trip to the International Space Station (ISS), on July 8, closing an era of manned space flight for NASA (the National Aeronautics and Space Administration).

 

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“South Sudan” – Succesful Secession Backed by EU and U.S. (7/13)

The world’s newest country, South Sudan, acquired statehood on July 9 as a result of a partition of Sudan that was strongly encouraged by the U.S. (over many years) and ultimately by the EU as a last resort for ending civil war between the largely-Arab north and the sub-Saharan south.

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China Pledges to Help EU on Debt and Investment (6/30)

Chinese Prime Minister Wen Jiabao was welcomed with open arms on a trip to three EU states on a four-day trip beginning on June 25 that involved visits to Hungary, Britain and – on a larger scale – Germany. The theme of his European swing was a “new chapter” in China’s relations with Europe, apparently signaling a change in the longstanding Chinese attitude of dismissing the EU as a significant international player.

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Europe Agrees With U.S. on Afghan Mission: Time to Start Pulling Troops (6/23)

In Europe, President Obama’s declaration on Afghanistan that the tide of war has turned and that American troops be steadily withdrawn was met with enthusiasm – and no dissent – both from countries that have contributed heavily to the war effort and to those, such as Germany, that have been reluctant partners in the campaign.

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Political Failures of Greece's Democracy May Doom Economic Future (6/20)

With Athens’ new debt bail-out hanging in the balance this week, the economic situation -- even for a comparatively small EU country such as Greece – could hardly be more dire. Even now, however, the country’s overall accounts might be susceptible to a recovery via a combination of international help and Greek commitment. But a growing threat to that formula for success is the increasingly obvious failure of Greece’s political class. After years of shirking responsibilities for the country's long-term future, Greek leaders may be unable at this point to rally the nation to face a major crisis.

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Croatia’s Progress to EU Should Encourage Other Balkan States (6/16)

Croatia passed a crucial hurdle in its pursuit of EU membership when the European Commission gave formal approval June 10 to its accession application. Endorsement by EU heads of state is now considered only a formality, and Croatia’s tentative entry date is July 1, 2013.

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E.coli Epidemic: Germany Today, U.S. Tomorrow (6/10)

The E.coli epidemic in Germany has scared people across Europe: more than 30 are dead (more than in the nuclear accident in Japan) and up to 3,000 people are sick; restaurants have posted signs explaining that they are not serving vegetables (even tomatoes in sandwiches); consumers are frightened about eating fresh vegetables, even from organic growers; farmers and businesses have lost crops worth of hundreds of millions of euros and the health authorities face a mystery that they have been slow to solve.

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U.S. Lambasts European Allies for Failing NATO (6/10)

In strong terms of condemnation rarely heard from a U.S. secretary of defense, Robert Gates chose his last appearance at a NATO ministerial conference to admonish the European allies that their failure to maintain their military has put at risk the U.S. commitment to the transatlantic alliance. 

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Trichet Says Eurozone Will Need a “Finance Ministry” (6/9)

In a valedictory speech before leaving the European Central Bank in October at the end of his eight-year term, Jean-Claude Trichet called for the creation – eventually – of a central finance ministry for the eurozone with powers to intervene in the budgetary and economic decisions of member states.

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Lagarde Broadening Support to Head IMF (6/9)

Christine Lagarde, France’s minister of finance, seems set to emerge as the leading candidate for the post of Managing Director of the International Monetary Fund, succeeding Dominique Strauss-Kahn, himself a former French Finance Minister. Formal nominations for the post are due on Friday, June 10.

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Why Merkel Is Getting Red-Carpet Welcome in Washington (6/6)

The Obama administration is extending an exceptionally warm reception to Chancellor Angela Merkel even though she recently opposed Washington on Libya and on so many economic issues. Why?

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Rising Backlash Against EU Austerity (6/6)

As the eurozone debt crisis mounts and spreads, the austerity policies put in place by the worst-hit European countries are taking a political toll that could limit leaders’ decisions in their ultimate choices about Europe’s future.
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Worldwide Web: Transatlantic Divergences on Its Future (5/31)

In an unusual joint public-private initiative, political leaders and major Internet players held a broad open forum on May 24-25 in Paris to discuss the future of the Internet. Held on the sidelines of the G8 summit meeting of Western powers in Deauville, the web forum was called "the e-G8." The outcome was foreseeable -- more divergences than agreement.

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What DSK Meant to IMF (5/25)

In the maelstrom of debt engulfing the eurozone in 2009, IMF Managing Director Dominique Strauss-Kahn was “the right man in that place at that time” – both for Europe and for the Fund’s own stature. That favorable judgment is part of a well-informed, nuanced overall account of his record at the IMF that was given to European Affairs two days before the first report surfaced of the scandal that led to his downfall. The insights and evaluation came from Edwin “Ted” Truman, a highly esteemed international economist. Currently a senior fellow at the Peterson Institute for International Economics in Washington, Truman has held many senior positions in the U.S. government and in the IMF.

Under Strauss-Kahn, the IMF transformed itself from being an enforcer of rules on developing countries to becoming a pivotal player in helping rescue European countries and even the euro itself amid a transatlantic financial meltdown. As a sign of its revived prominence, the Fund tripled its resources for lending. Retracing these developments in his question-and-answer session with European Affairs on Friday, May 13, Truman, a prominent “insider-outsider” in the Fund’s evolution, offered an incisive summing-up of what Strauss-Kahn succeeded in changing at the Fund and a partial list of some challenges that remain.

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e-G8 Wants to Be New Forum on Web Freedom and Governance (5/23)

A special variant of the G-8 – this one to bring together a “summit” of web leaders – is meeting in France ahead of the regular G-8 summit meeting this week in Deauville. In this initiative, President Nicolas Sarkozy is convening key players from the public and private sector including such influential figures as NewsCorp owner Rupert Murdoch, Facebook’s Mark Zuckerberg, the French Minister of Finance Christine Lagarde and the European Commissioner for the Digital Agenda Neelie Kroes for a two-day debate (May 24-5) to discuss Internet-related questions -- notably how to ensure its reliability and accessibility while protecting the global system’s security.

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