- Article Information
- Category: July 2011
- Created on 28 July 2011
Rhetoric about the debt threats sounds similar on both sides of the Atlantic, focusing on political leaders’ apparent inability to cope with the crises. In fact, the resemblances and comparisons are superficial, argues prominent economist Simon Johnson in a trenchant article entitled: “Who Is In Worse Shape – The United States or Europe?”
- Article Information
- Category: July 2011
- Created on 26 July 2011
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.
- Article Information
- Category: July 2011
- Created on 21 July 2011
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.
- Article Information
- Category: July 2011
- Created on 20 July 2011
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.
- Article Information
- Category: Roundtables
- Created on 07 July 2011
On July 7, 2011, The Honorable András Kármán, Hungarian State Secretary for Tax and Financial Regulation at the Ministry of National Economy, who personally coordinated the negotiations between EU Member States and the European Parliament during Hungary’s Presidency of the European Council, on a number of key legislative initiatives, including the reform of the Stability and Growth Pact, offered his insight into what was accomplished and the challenges that still lay ahead in the European Union’s push for sustainable financial and economic stability.
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