Credit Rating

By Dr. Klaus L.E. Kaiser —— Bio and Archives February 29, 2012

Comments | Print This | Subscribe | Email Us

The bureaucrats of the European Parliament have proposed a new law that would allow them to forbid Credit Rating Agencies (CRAs) from publishing assessments of their countries’ credit ratings [1]. The lawmakers are upset about recent rating downgrades of European states by major CRAs.

It’s comparable to prohibiting free speech to avoid the message you might hear. Whether this proposal will become law or not is still unknown, but one thing is for certain: It would not be to Europe’s long-term benefit. The world thrives on commerce and trade. For that to work smoothly, companies and individuals need to be able to assess financial risks to their enterprises. Such risks can be substantial, and can be subject to frequent revisions, due to changing circumstances. The idea that you should not be able to get the best or most recent information on any country’s creditworthiness flies into the face of all kinds of national laws and international agreements. The same proposal by the European bureaucrats also encourages the creation of new, European CRAs. No problem with that. However, prohibition of any CRA from publishing their analyses smacks of control and interference with fundamental rights. Could it be that this proposal is simply a “red herring” trying to distract from fundamental flaws of a system? [1] Europe Seeks to Reduce Debt Ratings’ Influence