Beware the credit gods
Published 12/11/2012 | 12:39
Credit ratings agencies emerged long since as major players in the fallout from the global financial meltdown. Governments, bondholders, international agencies and top bankers seemed to regard their pronouncements as infallible.
And in a way, they were. If a major ratings agency reduced a country's standing by just one notch, that country's debt burden would rise. If there was a deep cut, especially one to the dreaded "junk status", there would be talk of bailouts and even defaults.
Fears about the immediate future could, and still can, come into the reckoning.
Moody's, one of the leading agencies, suggested last week that Ireland's Ba1 rating could be cut if we rejected the European fiscal compact in "the forthcoming referendum". This opinion was not only wrong, but badly out of date. We voted Yes to the fiscal treaty last May.
The agency quickly removed the offending item from its website and replaced it with a rather flattering message about Ireland -- coupled, however, with warnings that sound remarkably familiar.
We must meet our fiscal targets. We must watch out for adverse events in Europe. Our new insolvency law will work in the long term but cause problems in the short term.
Did the international financial community really need a ratings agency to emphasise the obvious?