Friday 25 May 2018

Rating agencies must not be asked to speak with hand over mouth

Thomas Molloy

Thomas Molloy

A CURIOUS belief among the country's political elite is that they should not be criticised while travelling abroad or by people living abroad.

This supposed immunity from foreign criticism extends to German ambassadors, the 'New York Times' and the European Commission.

This week, the international rating agencies were added to the long list to be told "you say it best when you say nothing at all".

It seems politicians of all hues have taken offense to comments by Standards & Poor's analyst Frank Gill who spoke of the need for "new faces in government" and added for good measure that "there needs to be a credible plan for the public finances".

The debate about Mr Gill's comments are not academic. Economists say the accompanying decision to cut Ireland's credit rating by a notch could cost taxpayers €500m this year and €1bn next year.

Who said opinion is free? The comments provoked support for Taoiseach Brian Cowen from an unusual quarter: the Labour Party's Joan Burton complained in the Dail on Tuesday that the make-up of the Irish Government was "not any business of a foreign ratings agency".

It is not the first time in recent weeks that Deputy Burton has wrapped herself in the green flag.

She recently urged Bank of Ireland to pick a chief executive from an overseas bank while specifying that he should be Irish.

One may disagree with Mr Gill's analysis, but it is absurd to suggest that a rating agency's job is to speak with its hand over its mouth.

It is impossible to have a real debate about economics without talking about politics. Who believes that Zimbabwe's problems with high inflation are economic rather than political?

Hairshirt budgets

It may well be the case that the Taoiseach will not be able to convince his own party and the Greens about the necessity of several hairshirt budgets on the trot.

This is worth considering. In fact, we all know from the December budget that it is quite likely he will not be able to convince them.

There cannot be serious analysis of the economy without considering whether the Government has the guts and stamina to implement whatever package of reforms is agreed.

It is therefore completely logical that Standard & Poor's and the other rating agencies look closely at political developments and advise their clients accordingly.

Those clients, by the way, are the people we are all depending on to save us from the current mess.

No teacher or garda will be paid next year unless the Government is able to continue selling bonds.

Nobody will buy those bonds if the rating agencies don't make recommendations which are seen to be free of political pressure. We need the rating agencies far more than they need us.

We may need the rating agencies, but this does not mean that we should pay too much attention to what they say here in Ireland.

The Taoiseach was absolutely right to tell the Dail that he has "no comment on the gentleman from the credit rating agency. I do not know what he knows about Irish politics or what the choices are".

We should remember that the view of Standard & Poor's is really the view of one or two people and, like all views, is open to challenge and correction.

Financial crisis

The financial crisis has often illustrated that the rating agencies did not understand what they were rating.

It would therefore be foolish to place any great store by Mr Gill's opinion, but it is morally bankrupt to suggest that somebody who is doing his best to analyse our economy's problems is somehow ineligible to comment simply because he lives in London and works for a "foreign" rating agency.

That may work in North Korea, but it won't wash in Ireland where we need dialogue with the international markets.

It is here that Mr Cowen has failed, and it is here that he must shoulder some blame.

If analysts overseas don't understand what is happening in Ireland, the Government must devote more resources to explaining what is going on here.

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