Accomplices of recession

The position of the risk ratings agencies is growing more confused and counterproductive for the resolution of the debt crisis, in so much as their surprising findings are compared with the evolution of the recession and the causes that brought it on. The real utility of Moody's, Standard & Poor's (S&P) and Fitch to the investors is very limited, given that governments, financial entities and companies circulate among themselves information more relevant than that which is publicly facilitated by the agencies. It is not surprising that by now the markets hardly react to their downgrading notes and abrupt tones.

It seems unprofessional that a general director of S&P should venture to compare the Spanish debt rating with a junk bond, when it is obvious that its loss of quality has been heavily influenced by mediocre analyses on the expectations of the Spanish economy carried out by her agency, among others.

None of the three biggest ratings agencies have at any time seen fit to mention in their diagnoses (and much less in their proposals for corrective policies, which indeed are non-existent) the fact that Spain and other countries have been diligently implementing the adjustment policies prescribed by the EU to stabilize deficits and correct the debt.

Governments and citizens have a right to demand explanations from the agencies. If their ratings chastise economies that reduce public spending, then what are belt-tightening policies good for, if not to accentuate, by the agencies' intervention, the selfsame debt crisis and associated recession?

It is no surprise that more than a few observers consider that the agencies are depressing the euro zone economy and favoring the area of the dollar.

Yet in fact the ratings agencies, with their pro-cyclic obsession, are about to commit another grave mistake. The powers that be in Europe (Germany and France) and the institutions of financial control (ECB), are beginning to accept the idea that the adjustment policies, necessary to ensure the currency's stability in the medium term, have to be complemented with policies of demand stimulation. The case of Greece, now pending a pre-agreement to declare a "haircut" (partial write-off) on its debt, shows that fiscal contraction policies are not only not enough to resolve the crisis, but further aggravate the situation of countries in which they are applied without other accompanying measures.

Moody's, Fitch and S&P persist in their old criteria of analysis, which only deepen the recession, while failing to offer any solution at all.

It is surprising that, in spite of the evidence that shows the pernicious effects of the ratings agencies' behavior, the European authorities have yet to take some decisions that have been long expected, such as a liberalization that would break the monopoly of the "big three." This would no doubt be the first step; later, perhaps, consideration should be given to the creation of a European ratings agency.