AEP is back, and he is angry...
Before we all join the chorus of abuse against the robber agencies,
let us not lose sight of what is happening in the eurozone. The EU
authorities are attempting to muzzle free opinion, first by threatening
Fitch, Moody’s, and S&P with vague retribution, and then by drafting
restrictive laws to prevent them from publishing unwelcome messages.
It is financial repression, pure and simple. The same will be done to the press in due course. Then to you, dear reader.
“We must break the oligopoly of the rating agencies,” says German
finance minister, Wolfgang Schäuble. By “we”, of course, he means the EU
apparatus of coercion.
The European Commission has already created a pan-EU oversight body
with binding powers to breathe down the necks of these agencies. It will
draft restrictive legislation by the end of the year. The Portuguese
downgrade ensures that it will be even nastier.” Developments since the
sovereign-debt crisis show we need to take a further look at reinforcing
our rules,” said Commission chief Jose Manuel Barroso.
Mr Barroso came close to accusing the agencies of cartel activities and a malicious agenda.
“It’s quite strang that the market is almost dominated by only three
players. It seems strange that there is not a single rating agency
coming from Europe. It shows that there may be some bias in the markets
when it comes to the evaluation of the specific issues of Europe.”
What should have been done is obvious. The EU’s bail-out fund should
have been given powers mop up the bonds of countries in distress on the
open market at a hefty discount (as the ECB suggested). Investors would
have suffered condign losses, and the EU could have given Greece debt
relief by retiring bonds with no net loss to European taxpayers.
This elegant solution was blocked by Germany because it was seen as a
slippery slope towards a Transfer Union, and might have violated the
Grundgesetz. (In a sense the Germans are right, but you shouldn’t join a
currency union in the first place if don’t realize that it implies
Now, if the EU institutions wish to avoid being held hostage by the
robber agencies they should stop using the ratings as a basis for
lending collateral at the ECB. They should create their own more
rigorous method of assessing credit-worthiness, ignore the agencies
altogether, and make their case directly to global investors.
What the EU should not do is try to muzzle free opinion, or free speech. We are on a slippery slope.