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Mediawatch Politics

Legatus non violatur

The big three credit ratings agencies were threatened yesterday with fines and the creation of a new state-backed competitor, only weeks after European leaders attacked them for exacerbating Greece’s problems with downgrades. – The Times (UK)

Readers will be familiar with reactions by the Maltese administration to certain reports from particular institutions. “Audit” is the byword for a scrutiny or check that was originally applied to matters accounting but is now extended to such realms as “democratic accountability” and “freedom of press” to give but non-economic examples. The auditor is supposed to be as impartial as possible and his job is simply to report on the state of affairs – the idea being that it is up to managers, politicians and lobby groups to make do with the report as best they deem fit.

Recently we have seen an increased tendency to debate the validity of the auditor rather than the message itself. In other words, in these times of economic woes that might even effect the clear thinking of (non-economic) democratic institutions, there is a growing tendency to shoot the messenger.  A concerted effort by (Commission President) Barroso and (German Chancellor and French President) Merkel & Sarkozy has recently been stepped up with the intention to undermine the credibility of a very important set of “auditors” in this day and age.

credti rating marks.jpg
Credit Rating Chart

Europe’s continental leaders have targeted the three credit ratings agencies – responsible for the rating of governments and of their ability to pay their debts. The three: Standard & Poor‘s, Moody’s and Fitch (no relation to Abercrombie’s other half) have been busy downgrading Greece, Spain and Portugal’s ratings recently and were also on the verge of giving the same treatment to France. While Merkel and Sarkozy argued that the agencies need more scrutiny – a form of supervision and regulation – Barroso criticised the three for failing to alert investors on the imminent demise of Lehmann Brothers in 2008.

Barroso asks three questions:

  • Is it normal to have only three relevant actors in such a sensitive issue where there is a great probability of conflict of interest?
  • Is it normal that all of them come from the same country?
  • Is it normal that such important entities are escaping fundamental regulation?

Now the eagerness with which the “EU that counts” shoots down the three agencies is inevitably tied to the large amount of control that they hold on the mood of the market. their ratings are not simply an auditing assessment but any move of theirs tends to have heavy repercussions on the financial and economic sectors. Shooting the messenger is only half the story.

The EU does not only intend to regulate the auditors but seems intent on creating an auditor of its own – an in-house competitor. Questions will surely be raised about the independence of such a new monster. If the current three are not above suspicion because of the possibility of conflicts of interests what then of the new monster that will be financed by the very set of sovereign nations it is supposed to vet?

Barroso’s questions begin to sound more and more like Muscat’s quickly assembled 15 point plan to battle corruption. Loads of rhetoric and flimsy legal justification. In both cases they provide little solution and comfort. Back to the drawing board José (and Joseph)

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3 replies on “Legatus non violatur”

Warning – rant coming up, Is there anyone who really believes that a moody fitch can actually dispense reliable standard certificates confirming the financial standing of a country? Hands up any economist who really believed that Greece had managed the Euro entry criteria; who was not aware of the voluminous Greek activity in ‘off balance sheet’ activity. remember – the Euro project is political not financial?

And what do we do when the fallout from crazy hits us? We become crazier still. sophist rules that lead to make believe. To think that Joseph or Lawrence can say anything that can be relied upon. Not because they have bad intentions but because it is as humanly impossible to state anything beyond broad principles as is a day trip to Andromeda. Take the power station issue. Government had a clear policy – Tried and tested and gas. No complaints for years because that was a good policy. The end result – a prototype heavy fuel oil solution. Is that because government was lying to us? I do not think so. It is because one day is a long time and digging your heel in the ground years before the rugger game is due is flippant to an extreme.

just look at the current economic crises. A western world that can produce anything from homes to airplanes to hotels etc. So why the problem? Why a system that continues to chase consumer demand at the expense of the environment and natural resources when demand is simply not there? Where are the greens in this crucial debate on economic reform in defence of the huge environnmental cost to the crazy financial system? Or should we ask Jospeph too on this? Rant over.

From Danny…..
Take the power station issue. Government had a clear policy – Tried and tested and gas. No complaints for years because that was a good policy. The end result – a prototype heavy fuel oil solution. Is that because government was lying to us? I do not think so.

Danny, isn’t that what lying means? Saying you’re gonna do something and then not doing it or doing it differently?

WHAT do you think was the reason that the govt. went back on its word??

I think it’s because of all the corruption, gross negligence and incompetence, though as the auditor said “there’s no hard evidence” of that.

If there was any seriousness in that place, the cops would just follow the money trail…….

Point taken…my point is that it is easy to say in a vacuum ‘streets paved in gold and rain made of rose petals’ and another when you have to do it now…re power station, i see the saga as a testimony of a government well past its sell by date, opening itself to all sorts of potential corruption from god knows who…

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