How Rating Agencies are aggravating the Euro Crisis

Rating agencies Standard & Poor’s, Fitch and Moody’s are alive and kicking: the whole world quakes in the face of their credit ratings, not least most recently the governments in the eurozone. The rating agencies influence the ups and downs of European government bonds. If the agencies give the thumbs down, investors are more cautious and governments are less willing to lend, which leads to rising interest rates for new government bonds. Advocates of ratings find that quite normal; ultimately, they pay agencies to assess whether a government will end up bankrupt because of its policy. If a credit rating is downgraded, investors sell their securities to reduce their risk.

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