And now, the dollar

For the first time ever, the United States has seen its credit rating reduced from AAA by one of the ratings agencies. Moody's and Fitch have maintained their AAA assessment, but the decision by Standard & Poor's to downgrade will have powerful negative repercussions, and will doubtless affect the world economy, as well as US domestic and external foreign policy.

The US government has criticized the agency, arguing that its figures are inaccurate. Standard & Poor's says its downgrade reflects concern over US economic policy, and particularly the near failure to reach agreement over raising the country's borrowing ceiling. In contrast, the other two agencies saw the eventual agreement as a positive step.

President Obama's rating has also been negatively affected by the downgrade. Not that the Republican party has come out of the affair looking much better, given that the ratings agency's decision draws into question the ability of the United States' political parties to work together on decisions that the country desperately needs to take, and which have global repercussions. This is another of the aspects of the matter that has so annoyed the US government: the ratings agency has made political judgments, straying from its brief to provide numbers. Both Democrats and Republicans will find arguments to resume a debate that the agreement last week merely delayed.

US relations with China are now entering a period of what might euphemistically be described as turbulence. In light of the downgrading, Beijing is now demanding guarantees that Washington will be hard placed to meet. There is the risk that China will now try to reduce its exposure to dollars, and will start further diversifying into other countries, making financing yet more scarce, and making it more difficult than ever for the world economy to recover and to create jobs.

The magnitude of Standard & Poor's decision once again raises the question of the influence of the ratings agencies on the international money markets. As more than one observer has pointed out, they are in part to blame for the current crisis for giving AAA ratings to the complex financial packages put together by US banks based on sub-prime mortgages, which of course turned out to be highly toxic. Now they are making recovery difficult. Perhaps we should be asking to what degree we really want these agencies to exercise such influence over the global economy.

Attacks against the euro

Over the course of the coming days we will see to what extent the markets have been affected by Standard & Poor's decision to reduce the US credit rating. In all likelihood we can expect further falls in the world's main bourses, along with renewed attacks against the euro. Europe's response to the situation has been neither rapid nor concerted, and highlights the lack of any institutional solidity behind the single currency. It is to be hoped that the European Union's leaders will show greater capacity for decision-making and action than during recent weeks when the Italian and Spanish economies have been under attack. The problem is that with every day that passes, the EU has less room for maneuver.