Martin Flanagan: It’s not just politicians who are cowed by rating agencies

IT WAS a policy‑frustrated adviser to President Clinton in the 1990s who said if he was reincarnated he wanted to come back as the “f****** bond market such was its ability to cow everybody and get its own way”.

Perhaps second best in the intimidation stakes, but still often very influential, are the credit ratings agencies.

This is perhaps somewhat strange given the exceptionally bad war the debt agencies had in the subprime catastrophe. They failed to warn against the whole subprime deck of cards and worthless mortgage‑backed bonds and derivative products well into the firestorm.

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Now there is a hint that markets are beginning to take the Moses‑like tablets from the likes of Standard & Poor’s (S&P), Fitch and Moody’s and their smaller rivals, with a pinch of salt.

S&P warned that it may downgrade 15 of the 17 eurozone countries, including its linchpins Germany and France, if European Union leaders failed to agree a plan to solve the debt crisis by Friday.

It was hardly great timing as the world watches German chancellor Angela Merkel and French president Nicolas Sarkozy mount a last‑ditch effort to keep the euro project going.

Surprisingly, markets reacted calmly to S&P’s threat. Both London and Wall Street were down a mere handful of points after the statement.

It is too early to say that markets now believe the ratings agencies are too ready to cry wolf and need to be faced down.

But it is a sign that those markets now realise the credit ratings agencies have a pretty chequered forecasting history at best, and that their forecasts of gloom may not crystallise.

As such, their warnings of potential downgrades, sometimes even the downgrades themselves, need to be assessed but as one of many moving parts in a volatile situation, not as some definitive judgment that we are all doomed.

As mentioned, if the same agencies got it wrong with their sanguine judgments in subprime, it is just as possible they can get it wrong when they are too pessimistic.

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S&P’s warning took a little of the lustre off the UK’s markets closing five‑week high on Monday, following an 8 per cent rise in the previous eight trading days.

The steady reaction to it may be a bigger positive in the difficult days ahead.

The eurozone is far from out of the woods.

But the concerted action last week by some of the world’s biggest central banks in stabilising liquidity in the system, together with greater optimism about Sarkozy’s and Merkel’s determination to keep the euro afloat, is a good reason for modest, measured optimism.

It is therefore a welcome relief that the latest missive from the debt agencies did not derail that optimism as might have been the case not so long ago.

Ambition may have to remain in the pipeline

NO-ONE can fault the Scottish Government for ambition, nor for its long-term vision and its recognition that the country’s infrastructure not only needs upgrading but will also be a source of badly-needed economic activity, writes Terry Murden.

But turning fine words into deeds is where the trouble begins. If anything, the £60 billion plans, first revealed in our sister paper Scotland on Sunday, look a little too ambitious, perhaps even unrealistic.

It is a big test of credibility for the Scottish Government to promise a 250mph superfast high speed rail link to England when we’re still awaiting a 30-mile line from Edinburgh to Tweedbank. A high-speed line is only feasible if the Department for Transport agrees to extend the planned London-Birmingham route from the Midlands to the Scottish Border. That’s a big if.

There are plans for dualling trunk roads; this in a country that cannot even afford to fill the holes in the roads.

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A number of the projects were already in the pipeline while others will remain on the drawing board for more than a decade, by which time there will no doubt be ample reasons why they cannot proceed.

This is a laudable list of pledges from ministers who are doubtless trying to persuade voters that life will be so much better under independence. But, as they say, we’ll believe it when we see it.