2011Dec6 Who Rates the Raters?
Standard & Poor's, rebuked by Warren Buffett in August after downgrading the U.S. over government gridlock, is again injecting itself into the political process, just as European leaders are poised to meet for a summit aimed at ending the region's sovereign-debt crisis.
The ratings firm put Germany, France and 13 other euro-area nations on review for a downgrade yesterday, saying "continuing disagreements among European policy makers on how to tackle" the region's debt crisis risk damaging their financial stability. The move came four months after S&P cut the U.S. to AA+, saying "extremely difficult" political discussions over how to reduce America's more than $1 trillion budget deficit tainted the credit quality of the world's largest economy.
S&P then added the same downgrade threat to the EFSF (European Financial Stability Facility). Its AAA rating is based on the six currently top rated European countries. If this downgrade occurs it is highly unlikely that the bailout fund will be able to attract enough interest in its bonds to fund the needs of Europe's cash starved countries.
Hours after meeting in Paris yesterday, the leaders of Europe's two biggest economies responded that they "took note" of the move by S&P, while both countries "reinforce their conviction" that common proposals for closer fiscal union in the European Union will lead the way out of the crisis.
The U.S. Role:
The Federal Reserve, along with the 17 euro zone national central banks, may help provide the International Monetary Fund with funds that could be used to aid debt-ridden states, a German newspaper said.
Die Welt cited sources close to the negotiations as saying the euro zone central banks could pay at least 100 billion euros ($134.2 billion) into a special fund that could be used for programs for nations struggling to control their debts.
"Also other central banks, for example the U.S. Federal Reserve, are apparently prepared to finance a part of the costs," the paper said. Treasury Secretary Timothy Geithner may discuss the idea in the coming weeks when he visits Europe, the paper said.
Officials had said on Saturday that talks on the size of loans from euro zone central banks were starting at a technical level after finance ministers from the currency union gave the go-ahead to explore the idea.