Greece and Portugal one day, Spain the next. Ratings agency Standard & Poor’s has certainly revealed an alacrity of thought and implementation of sensitive ratings changes that was totally absent in the lead-up to the global financial crunch and recession in August 2007.

After years of rolling over to the big Wall Street banks, the ratings group, and especially S&P, have “found god” at a time when a bit of discretion might help the situation, not trigger the end play in forcing Greece’s capitulation.

The impact of the ratings downgrades for Greece and Portugal was so great that there was no trading in their bonds last night. The buy/sell quotes appearing in media reports were indicative only (Greek two-year debt was offered with a yield of 22% or thereabouts at one stage). On other words, both countries were locked out of credit markets. And those private buyers who chased yield for too long and bought  Greek debt in recent days, are locked in.

That’s why the support package for Greece will probably have to be expanded to include help for Portugal, and involve the European Central Bank in a more substantial role.

But you have to wonder just why S&P moved so quickly when it was so slovenly and went missing, as did rivals Moody’s and Fitch, in the subprime crisis. It’s not the assessment of the Greek, Portuguese or Spanish economies was out of whack with reality. They seem pretty solid given the low growth, high debt outlooks they face. It’s just the timing that can be questioned.

In that scandal, the agencies lost whatever moral authority they might have had, now in Europe, especially Standard & Poor’s, they seem to be trying to assert that they are still the final arbiters of sovereign ratings. After proving easy marks for the investment banks, the agencies are now trying to regain their tainted authority by monstering the weak and infirm of Europe.

In fact, as hearings before the US Senate Investigations Committee last week revealed, the agencies’ weakness was a major factor in allowing the subprime and associated rorts to go on for so long. While that FT column was written on the basis of last week’s hearings, a similar one could be penned on this week’s events.

Now, led by Standard & Poor’s, they are rushing to judgement about countries where there should have been a bit of foresight shown, a year or so ago and right now. Perhaps the only point in their favour is that Moody’s has been much slower to cut sovereign ratings than S&P.

The sensible thing to do, without comprising itself (and it did enough of that in the subprime heydays to have no reputation left to protect) was to wait until the Europeans, especially the arrogant Germans, got their act together. Or it could have given the whole process a push along by indicating what might happen to Greece’s rating (and Portugal and Spain) if the debt support package remained unresolved.

Spain’s downgrade was just as problematic . Why now, especially after the agency would have seen the fear and terror the previous day after it chopped Greece to junk, and Portugal down to the bottom ranks of the A-rated countries?

The markets would have been in a good position to withstand the impact of this week’s downgrades, if Germany, the EU and ECB, plus the IMF, had shown more alacrity in getting a broad agreement in place in the days after Greece finally asked for help. Greece could have also asked earlier, but the government delayed and delayed as it tried to wriggle its way through the tough requirements needed by Europe for financial support.

Germany and Chancellor Angela Merkel have damaged their reputations in Europe and globally with the domestic political grandstanding that has pushed the eurozone and the future stability of the group to the edge.

The likes of Standard & Poor’s have compounded Germany’s crassness and cupidity. If we are lucky, it’s a bad experience and a nasty scare, if it’s not, it’s another credit/liquidity crunch and slump. If Greece can’t be supported, or is forced to take desperate measures, such as a unilateral default or debt restructure, who will keep lending to Spain, Italy, Ireland, Portugal, the UK and countries in the Baltic and Eastern Europe? And if that happens, what about lending to banks in Germany, France, the US and elsewhere?

Remember, as of last night Greek and Portuguese companies, banks and the two governments are locked out of international credit markets. All funding will not have to be domestic.

Unthinkable, a lot of commentators say, claiming the problem is “well-contained”. Well that’s what they said in 2007 until the money dried up on August 8/9, and then vanished when Lehman Brothers collapsed in September, 2008.

Peter Fray

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