An Opinion That Is as Political as Possible

Beyond the unpredictable reaction of the markets to Standard & Poor’s Aug. 5 downgrading of the rating of the United States from AAA to AA+ for the first time in history, the consequences of this event for economic and financial stability are difficult to anticipate. In spite of all the comments political leaders made in many capitals in order to reaffirm the stability of the global economy, the lower rating will automatically trigger an increase of costs behind financing public debts worldwide. This time also, it all boils down to the way in which rating agencies — Standard & Poor’s in this case — choose to express their opinions. Rating agencies simply issue their (albeit informed) opinions; they do not issue relative truths, let alone absolute truths. Nevertheless, their opinions exert a direct influence on stock investors. While the freedom to express one’s opinions cannot be limited, the authors of such opinions must be responsible enough in order to set their own limits.

In a so-called gesture of transparency, Standard & Poor’s explained that the downgrade of the United States rating “reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.” That this opinion is as political as possible becomes obvious when we notice that Standard & Poor’s immediately criticized American policymakers because of the weakened “effectiveness, stability and predictability” of U.S. policies in periods of crisis. And because political risks are growing, the rating agency warned that it will keep the United States under surveillance with negative outlook until it feels that American politicians are treating the country’s debt issue in a serious manner. Did Standard & Poor’s do the same in 2008? Did it warn the Bush administration that playing war games on several fronts creates debt? And, generally speaking, did rating agencies anticipate in any way the financial crisis? As it is aware that its “opinion” will generate disputes, Standard & Poor’s has maintained a kind of distance. John Chambers, the representative of the rating agency, who has become somewhat of an ad hoc political analyst, considers that both the Bush and the Obama administrations were responsible for the deterioration of the economic situation in the U.S. However, Bush is at his Texas ranch, while Obama is just starting his campaign for a second mandate.

Although the downgrade of the rating does not really come as a surprise — the rating agency gave a first warning to the American government as early as June — since this event made headlines, speculations have run out of control. And the panic that has spread beginning with last week cannot be alleviated with only a few speeches.

From a geopolitical viewpoint, consequences are already starting to show. If Japan, the United States’ second-biggest creditor, has preferred to remain in the position of an ally and has announced that the rating downgrade will not influence its politics, China, on the other hand, the main creditor of the U.S., has doubled its guarantees with a warning and asked the U.S. to adopt serious measures in order to address its structural debt problems, in spite of having also announced that it would not change its politics.

The downgrade might have immediate effects in Europe as well. If it was possible for the U.S. to lose its AAA rating, the same might happen in the case of the three main European countries: Germany, the United Kingdom and France. Additionally, given the situation of public finances and economic activity in the last two countries, chances are that their rating will be downgraded as well.