Blogs & Comment

Credit ratings: the emu solution

Europe’s awesome new proposed remedy for the debt crisis.

A man looks at the stock price monitors at the the BM&FBOVESPA Stock Market in Sao Paulo, Brazil, Monday, Aug. 8, 2011. (Photo: Andre Penner/AP)

The downgrade deathmatch has produced its most entertaining moment yet. Several weeks ago, I catalogued this year’s most entertaining sovereign downgrades, including the often colorful responses they elicit from offended politicians irked at these alphabet-heavy criticisms of their fiscal prowess. Now, according to a report from the German edition of the Financial Times, the European Union is mooting a novel solution: Ban downgrades.

According to reports, European Internal Market Commissioner Michel Barnier is considering amending EU law to allow the newly-formed European Securities and Markets Authority (ESMA) to prohibit credit rating agencies like Standard & Poor’s and Moody’s from publishing reports about troubled EU economies. Such bans could enter effect when a country enters negotiations for bailout money from the EU or IMF, as Greece, Ireland and Portugal have done.

If this new law were enacted, the public might be deprived of hearing Italian Premier Silvio Berlusconi’s crude scoffing as his country gets downgraded to BB-. But the spectacular drama of sovereign defaults cannot be extinguished. Perhaps it has not occurred to Barnier that were the ESMA to actually exercise this power, it would amount to admitting the country being protected was in such poor financial shape it cannot be mentioned in polite conversation.