Jeremy Hobson: One of the things driving the markets today is the surprise announcement by Standard and Poor’s last Friday to downgrade the credit ratings of nine European nations. That includes France and Austria, which lost their prized AAA ratings.
Rob Carnell is chief international economist with ING. He’s joins us live now from London. Hi Rob.
Rob Carnell: Hi.
Hobson: Well, it does seem like these ratings agencies have still got an enormous sway in the debt crisis in Europe. How important are these downgrades?
Carnell: I think they’re much less important than they once were. I think there have been periods during this debt crisis in the eurozone where the ratings agencies have come in and downgraded countries and really had an enormous impact — you know, just at the point where they were reeling, they’ve come in and given them another kick.
But I think this latest batch of downgrades, they were quite well-flagged. I mean, we didn’t know exactly when the timing was going to be, but we had a very good idea they were coming for countries like France. And I think it hasn’t caused quite as big an upset as would have happened.
You mentioned that the stock market movements today, they’re broadly flat or up slightly. And looking at the bond market as well, the movements actually yields — typically, these would rise substantially on a downgrade. If anything, yields today on government benchmark bonds are down slightly. So maybe the impact isn’t as big as it used to be.
Hobson: Meaning that borrowing costs for these countries are going down, not up.
Carnell: Exactly.
Hobson: Quickly, Rob. Have the ratings agencies lost any of their credibility, given all that’s happened with their ratings on mortgage-backed securities in the crisis, and even these countries now?
Carnell: Yeah, I think they have done. And there are calls by European politicians to replace the sort of private, U.S. ratings companies with a European version. I’m not sure that would be any more credible. And the reasons that countries like S&P have set out for these downgrades — they’re very open, they’re quite formulaic, matrix-driven. They’re pretty obvious — quite hard to argue with, actually.
Hobson: Rob Carnell, chief international economist with ING, thanks so much.
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