With a new strategy laid out for the Eurozone, all eyes are now on how greater oversight among the member states that have signed on will be received by the markets and credit rating agencies. While today suggests some positive receptions from markets in Europe and further afield, ratings agencies may be a different story. Standard and Poor’s said they would hold off until after this week’s Eurozone conference to announce anything about European ratings, adding an element of unease to France who have suffered under the threat of a downgrade for weeks now. However, as the agencies ponder the new plans how much of an impact it will really have on the region – as well as what the UK’s new found positioning will mean for London and Brussels – it is worth considering how much of an effect a downgrade will actually have given the agencies’ track record and current standing in Europe and beyond. Having come under attack recently for rather questionable or late findings about everything from mortgage-backed investments to Greece’s overall well-being, agencies are now finding themselves in a defensive position, forced to defend their ratings, their methodologies or even their purpose. Even worse, their findings, including recent downgrades of government bonds in Italy and Spain, have been greeted largely by yawns by the market.
This is in no way meant to suggest that agencies like S&P or Moody’s will cease to be relevant. The threat of six countries in the Eurozone losing their AAA rating come next week would undoubtedly be a blow to the region’s momentum towards staving off a collapse. But given their timing and new questions about methodology and track records, I will be curious to see how much of an impact a possible downgrade of European bonds will have come next week.