EU aims for the messenger, Part II

Standard and Poors finally pulled the trigger on the (not nearly) Great (enough) Eurozone Downgrade. Nine eurozone countries saw their ratings hit, including the biggest casualty, France, which lost its AAA rating. Italy and Spain were downgraded two notches. Moreover, as ZeroHedge noted, S&P had the gall to expose the nudity of the Brusselian Empire (emphasis added):

We also believe that the agreement is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the periphery of the eurozone. In our view, however, the financial problems facing the eurozone are as much a consequence of rising external imbalances and divergences in competitiveness between the EMU’s core and the so-called “periphery”. As such, we believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.

Accordingly, in line with our published sovereign criteria, we have adjusted downward our political scores (one of the five key factors in our criteria) for those eurozone sovereigns we had previously scored in our two highest categories. This reflects our view that the effectiveness, stability, and predictability of European policymaking and political institutions have not been as strong as we believe are called for by the severity of a broadening and deepening financial crisis in the eurozone.

In other words, the EUreaucracy doesn’t have a clue.

S&P also made note of the fact that a long term solution isn’t exactly popular with anybody:

Governments are also aiming to put greater focus on growth-enhancing structural measures. While these may contribute positively to a lasting solution of the current crisis, we believe they could also run counter to powerful national interest groups, whose resistance could potentially jeopardize the reform momentum and impede the recovery of market confidence.

Really? Who would have guessed?

S&P also takes aim at the European Central Bank’s notion of hosing member banks with funds in the hopes they buy peripheral debt (good luck with that); the growing realization among private sector bondholders that “haircuts” will look more like scalpings (and that several may be coming); and that all around, no one has any confidence that this will end well, period.

At present, four “core” nations still have AAA ratings, including the great Planet Londinium of them all, Germany (yes, I have come to the conclusion that Firefly unwittingly predicted the future of the EU), but the downgrade of Sihnon France puts the entire continental-based bailout scheme into question. But don’t take my word for it (same link, emphasis added by ZeroHedge):

Following our placement of the ratings on the eurozone sovereigns on CreditWatch in December, we also placed a number of supranational entities on CreditWatch with negative implications. These included, among others, the European Financial Stability Fund (EFSF), the European Investment Bank (EIB), and the European Union’s own funding program. We are currently assessing the credit implications of today’s eurozone sovereign downgrades on those institutions and will publish our updated credit view in the coming days.

Uh oh.

Of course, the EUreaucracy’s response is to take aim at the messenger one more time, and throw in a bunch of straw men for good measure (Daniel Hannan):

In Die Welt, the EPP’s Elmar Brok claims that the US has launched an economic war against Europe. For those who can’t read German, here is a rough summary of his argument. The US ratings agencies, he says, had no conceivable reason to downgrade nine eurozone states last week. What this is really about is a political project aimed at advancing ‘Anglo-Saxon interests’ in Europe. Americans have been becoming increasingly anti-European, as Mitt Romney’s campaign shows. (I have no idea either, but that’s what he says.) Then again, it’s not really their fault, since they’ve been fed lies by Anglo-Saxon media moguls for decades.

It’s tempting to dismiss Elmar as a buffoon, but he is a senior MEP who, among other things, chairs the EU-US interparliamentary group. More to the point, his views are widely shared. The President of the European Commission, José Manuel Barroso, regularly lashes out at the American agencies, and plans to create an EU one instead (as if anyone would believe a word it wrote). Earlier today, the European Commission threatened the agencies with greater regulation including censorship, prompting my colleague Ashley Fox to remark, ‘You don’t get better weather by turning down the forecast’.

That’s right. It’s the ratings agencies and the Americans. Best to muzzle them before the truth gets out.

All of this, mind you, is a desperate attempt to escape the reality that a multinational currency is simply unstable (especially when no one is expected to follow the rules during the boom years).

Cross-posted to the right-wing liberal