Finally, the counteroffensive against the perfidious and far from impartial rating agencies is off to a great start. Mario Draghi, the president of the ECB, did not mince words: "We must learn to live without the rating agencies and to do without their judgements". One of the top rating agency experts has always been on the same line, Giovanni Ferri, former Bank of Italy and former World Bank and now pre-rector at the University of Bari, which proposes suspending ratings in times of crisis. Here is his interview with FIRSTonline.
FIRSTonline – Professor Ferri, have you heard from Draghi? After the downgrading of Italy and half of Europe, don't you think it is more urgent than ever to decide to suspend – in times of crisis – the ratings of sovereign states?
IRONS – “Yes, I have thought so for many years. But to do so, strength is needed rather than the sum of weaknesses that Europe exposes today. After all, the pro-cyclical trend of the agencies is nothing new. Looking at things from Italy, what is the point of lowering the rating right now that, with the Monti government, there is someone on the bridge who is able to do whatever is necessary to stabilize the public debt and reassure the markets ? If the agencies were to do this downgrade – and this downgrade was already implicit in the spreads on the Bund and on the CDS of the past months – they had to do it already in the summer. But instead they have waited until now and today the downgrading seems almost to go against the clock. But it is worth remembering that also in 1992 the rating agencies did the same thing, downgrading Italy not before but after the Amato government started fiscal stabilization”.
FIRSTonline – Who should make an emergency decision on rating agencies and how likely is this to happen?
IRONS – “According to Article 24a of the new legislation on rating agencies, the decision to temporarily suspend the issue/review of sovereign ratings should be taken by ESMA (European Securities and Markets Authority) when all five conditions are met: a) c 'is an imminent threat to the orderly functioning of financial markets or to financial stability; b) the rating action would increase the risk of high volatility of financial markets and would likely cause significant spillovers for other entities or debt instruments; c) there are imminent changes in the financial strength and creditworthiness of the state, including ongoing negotiations on a financial assistance program which would likely affect the sovereign rating in question; d) the suspension measure can reasonably significantly reduce the risk referred to in point a); e) the suspension measure is not expected to have adverse effects on the efficiency of financial markets disproportionate to the benefits of the measure. Before taking action, ESMA should consult with the EBA and EIOPA and, as appropriate, with the European Systemic Risk Board and other relevant authorities. It seems to me that all five requirements would be met in the present circumstances, but I doubt that ESMA and the other institutions will have the necessary strength even when the legislation is operational”.
FIRSTonline – In view of the mountain of government bond auctions awaiting Italy and Europe, is there the possibility of sterilizing the effect of the downgrading on the financial investments of large international funds and institutional investors?
IRONS – “It would be desirable but, on the one hand I don't see how and, on the other, it doesn't seem to me that the markets are giving much credence to the moves of S&P's. After the turbulence triggered on Friday the 13th in the afternoon, it doesn't seem to me that the situation has gotten much worse when the markets reopened on Monday. So, in some sense it is perhaps investors who find the rating agencies less relevant than in the past”.
FIRSTonline – In an interview with Radio 24, the former premier and former president of the European Commission Romano Prodi argued that, in his direct experience, the representatives of the three major rating agencies are not particularly prepared and above all appear very conditioned by the environment and from the context – Anglo-Saxon finance – in which they operate: What do you think?
IRONS – “Rating agencies traditionally recruit people who are prepared but not the top, who instead go to investment banking and other places where you earn more. In terms of orchestration, I don't think there is anything like the Specter of the James Bond films at work. However, environmental conditioning can be a channel to take into consideration".
FIRSTonline – Is it fantasy or is it true in the suspicion of complicity between the 3 major rating agencies and Anglo-Saxon finance which has withdrawn its capital from Italy and the eurozone and is betting on the collapse of the euro?
IRONS – “Even here, I don't think it's a series of concerted actions. But there is no doubt that in the short term American finance would have more to gain than to lose if the euro project were to scuttle”.
FIRSTonline – Looking ahead, the idea of an independent European agency promoted by the EU seems to be gaining ground: what is your opinion and how long would it take to set it up?
IRONS – “I would propose that the European rating agency be based in Berlin, because that is where the most worrying blow to confidence in the European project came from. Apart from the jokes, that of the independent European rating agency is a valid project but it will be able to take off in the medium term (at least 3 years) and cannot offer an immediate solution”.
FIRSTonline – While waiting for new rules of the game, don't you think it would be useful if – in the midst of a financial war with unpredictable outcomes – the Monetary Fund exercised a more direct and effective surveillance action on the three major rating agencies?
IRONS – “Yes, even the IMF can help. However, not if we are dealing with an American-powered IMF because otherwise we fall back into the same problem as before. Perhaps, if no significant news comes from Berlin, the Monti government should call the bet and go to Washington to directly ask the IMF not to cut the nails of the rating agencies but to receive funding that will allow the Italian Treasury not to show up in auction for a year. Maybe that would mess things up a bit”.
